Commodity Trader Plans Turnaround After Losing $500 Million

(Bloomberg) -- After racking up almost half a billion dollars of losses over three years, the head of Engelhart Commodities Trading Partners says a restructuring has put the firm in a position to make money.

Following an “awful year” in 2017, ECTP exited physical trading of energy and most metals, plus its cotton-trading business, Chief Executive Officer Huw Jenkins said in an interview. Now the trading house spun off from Brazil’s Banco BTG Pactual SA is set to deliver steady profits, he said.

“The continuing business was profitable in 2018 and therefore we believe the whole business will be profitable in 2019,” Jenkins said.

Commodity Trader Plans Turnaround After Losing $500 Million

Founded in 2013, with ambitious plans to fill the gap left by banks exiting commodities trading, ECTP “over-expanded,” creating a company infrastructure that was too complex, the CEO said. Now, the firm has cut its staff by about 30 percent to 500 and shut offices in South Africa, Kenya and Argentina.

Commodity Trader Plans Turnaround After Losing $500 Million

“We’ve learnt a lot of lessons,” said Jenkins, a former UBS Group AG executive. “We were a startup four years ago. Now we are reaching a new stage of maturity and stability.”

ECTP posted a loss of about $160 million in 2018, with most of that coming in the fourth quarter, according to results published by BTG Pactual, the Brazilian investment bank that owns about 20 percent of the trading house. That follows a loss of $243 million in 2017, regulatory filings show.

The firm’s equity has declined from about $1.37 billion at the end of 2016 to about $520 million at the end of 2018.

Renewed Focus

The commodities trader is now focusing its physical trading on the origination of grains, oilseeds and coffee in South America for delivery to Asia, as well as energy and metals derivatives trading. It also still trades sugar and freight. Jenkins sees the firm’s costs falling this year to almost half the $200 million in 2016, and also flags management changes.

Paul Crone, a founder at Citrine Capital Management and former head trader at Touradji Capital Management LP, has taken over as head of metals trading, while Tom Coletti has joined as chief risk officer. Ricardo Froes is now chief financial officer. Former ECTP CEO Ricardo Leiman, the one-time head of Noble Group Ltd., left the firm last year to start a hedge fund.

“We believe with that equity base and with the people we have and our portfolio, we can be quite an attractive, profitable business,” said Jenkins, who says the firm is targeting a return on equity in the mid-teens.

The company has put its coffee-trading book up for sale amid the restructuring, according to people familiar with the matter. Jenkins said the firm doesn’t comment on market rumors.

Stake Buyback

The trading house also plans to buy back the 20 percent stake owned by BTG Pactual, the bank’s CFO Joao Dantas said in a Feb. 25 interview.

“The speed with which ECTP buys the stake back will depend on how fast it can generate results,” he said.

The remaining 80 percent of ECTP is owned by a group of partners that control BTG, including the bank’s Vice Chairman Jenkins. For him, the test will be whether ECTP can maintain its good start to the year.

“We need to demonstrate to ourselves as well as the market that the model can be consistently profitable,” Jenkins said.

©2019 Bloomberg L.P.