At the beginning of a year, a trader knows exactly how it’s going to cost to the company in overheads (A) and variable costs (B). Additionally the firm preserves its working capital by generating an adequate Trade-to-cash to cover items such (C) hedge margin calls, trade claims, credit losses vital to capture the physical imbalances that are materializing through the course of the year. Therefore the commodity trader has to earn above this A+B+C mark to come out even and make a profit at the end of the year.
At Trafigura AG, it is simply not ” as straightforward” we fear.
Trafigura 2017 interim results came with:
-A net operating cash outflow of -$5.5 billion and a pre-tax cashflow on net worth of -79%.
– A $6.9 billion financing cash inflow (comprised, predominantly, of an +$5,9 billion increase in short-term bank borrowings).
Why do Banks cover Trafigura’s massive financial hole ?
The 400M perpetual closed at 6.85% is an example of a bad decision making them looking “good” on a balance sheet. The fallacy is that Trafigura treats it as equity instead of debt and the way that they could temporarily double their 2017 interim results’ retained earnings, for a fee (way above Trafigura’s equity cost/return)1.
It begs one question-how long can they satiate the banks, continuing printing them an accounting profit, pretending a 18.9% total equity growth without any Trade-to-Cash generation ?
“Trafigura’s 3 rules”
First Rule: Only tell the truth when it’s useful (to you).
An Employee of Qingdao Energy (Mainland China) made up two sales contracts with a trader of Trafigura PTE ltd (Singapore) and with banking lines opened to Trafigura as a beneficiary. Some people say that Trafigura presented the documentation to a negotiating bank and got paid at sight, Qingdao received financing at usance (LC with deferred payment). Later was found that these deals were fictitious oil transactions between Trafigura and Qingdao and a local Chinese Bank (issuing credit to Trafigura PTE) lost $32M. Trafigura denied “believing that there is nothing wrong with that, that the dispute is a commercial one and is not a matter for the police”
Second Rule: If in trouble, sacrifice a single employee.
Michael Lauber, Attorney General of Switzerland has opened criminal proceedings against a former senior executive at the Geneva-based commodity trader Trafigura. According to Le Temps and NZZ, Mariano Marcondes Ferraz, promoted member of the board at Trafigura in 2014 is alleged to have paid bribes totalling more than CHF 808,000 to a former Petrobras director via an offshore account held with the Geneva private bank Lombard Odier. Trafigura denied and put the blame on a single employee with “non-associated” Trafigura related activities.
Third and last rule: Use promising words like “high compliance system” to anyone doubting the “crooked employee theory” or legality of the business dealings.
In May 2017 Trafigura opens an office in Ukraine and in July, the trader received a license with a stamp from NaftoGaz for gas deliveries up to $3.89B. In September 2017: a Court of Justice in Kiev has frozen Trafigura’s Ukraine’s Bank Account and Trafigura Beheer BV is sanctioned by their central bank for intl. payments in the course of an embezzlement investigation.