Oil Trader Gunvor to Tap Bond Market for First Time Since 2013

(Bloomberg) -- Gunvor Group Ltd. is seeking a return to the bond market for the first time in eight years, in a test of investor confidence in the trading house after it bought back and canceled its first public debt offering in 2015.

The Geneva-headquartered oil and gas trader wants to sell a U.S.-dollar denominated five-year bond, led by banks including Citigroup Inc., ING Groep NV and Societe General SA, Bloomberg News reported Wednesday. The bond would help diversify Gunvor’s funding sources, the bulk of which now come from short-term loans for its trading, refinery and asset operations.

The company, which is the biggest independent liquefied natural gas trader, is hoping the new issue fares better than the last time it sold corporate debt. Gunvor sold $500 million worth of bonds yielding 5.875% in 2013. However, their value plunged and the yield on the five-year notes surged when co-founder Gennady Timchenko was placed under U.S. sanctions because of his relationship with Russian president Vladimir Putin. 

Timchenko sold his stake to Gunvor Chief Executive Officer and fellow co-founder Torbjorn Tornqvist a day before the sanctions were levied. Still, the yield on the company’s notes climbed to more than 10% on March 21 2014, after sanctions were imposed on Timchenko, and peaked at more than 14% in December that year.

Gunvor began buying back and canceling the bonds the next year. When the company reaped windfall profits of $1.7 billion from selling the bulk of its assets in Russia, it moved to repurchase more bonds and cancel the listing, three years before they were due.

“We have good liquidity and cheaper forms of financing available so it made sense,” Seth Pietras, a spokesman for Gunvor in Geneva, said at the time.

Pietras declined to comment on the potential new bond issue.

Restructure

In the years since canceling the debut bond, the company has restructured operations, shuttered some of its money-losing refineries, shifted focus to more transitional fuels including biodiesel and LNG and enjoyed record profits from its trading business amid the price swings brought by the pandemic. 

But Gunvor hasn’t escaped scandal entirely. In 2019, the company paid about $95 million to Swiss prosecutors to settle a decade-old probe into bribes paid in Africa to win oil deals. The energy trader bulked up its compliance operations and said it had learned its lessons from the ordeal, pledging to stop using intermediaries or middlemen to facilitate oil deals in foreign countries.

Earlier this year, another former employee admitted to paying bribes in Ecuador to win oil deals. Gunvor has said it is cooperating with the U.S. Department of Justice investigation.

While commodities traders are thriving amid volatile price swings during the pandemic, they’re paying higher fees for loans from banks. Trade finance is the lifeblood of the commodities industry, as traders need access to millions in capital to finance the buying, transporting, storing and selling of raw materials. Several banks that were once major players including BNP Paribas SA, have scaled back or exited the industry.

Gunvor’s larger rival Trafigura Group has been among the most active trading houses in tapping capital debt markets to diversify its funding sources. Vitol Group, the world’s biggest independent oil trader hasn’t issued any public bonds but has sold private placements to investors.

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