Oil Trader Gunvor Expands Sustainability Loans Despite Virus

(Bloomberg) --

Energy trader Gunvor Group Ltd. is expanding its sustainability-linked debt portfolio even as the coronavirus pandemic saps demand for oil products.

Gunvor agreed to a 450 million euro ($505 million) one-year loan with a consortium of banks to fund operations at its Ingolstadt, Germany refinery. The so-called ESG loan ties lending rates to environmental, social and governance targets.

The deal brings the Geneva-headquartered trading house’s ESG loan portfolio to more than $1 billion after it renewed in January a $725 million facility for its two other European refineries.

“Despite the recent market volatility and uncertainty, it is very promising to see such strong lender support for this approach, as the Ingolstadt facility was heavily over-subscribed,” Muriel Schwab, Gunvor’s chief financial officer, said.

Companies worldwide are continuing to embrace sustainability-linked loans, tying interest rates to their ESG performance even as the coronavirus pandemic has been wreaking havoc on the global economy. Global issuance of such loans for the first six months reached $51 billion, exceeding the $48 billion recorded for the same period last year, according to Bloomberg data.

Top commodities traders are increasingly turning to ESG-linked loans for some of their critical financing needs and to bolster sustainability credentials with the aid of banks who are also encouraging such businesses to boost credit quality of their loan portfolios. Loans jumped six-fold in 2019 to $7.8 billion as crop traders Cofco International Ltd. and Louis Dreyfus Co. won sustainability loans and now link the bulk of their financing to ESG targets.

Click here to read more on how ESG will affect debt issuers’ credit outlooks.

Lenders have welcomed these facilities even as liquidity tightened during the pandemic because of the added assurance of sound and responsible business operations based on the sustainability metrics.

Gunvor’s facility was oversubscribed to 520 million euros but it decided to keep the deal size at 450 million euros, a spokesman said.

The new refinery loan comes as demand for oil products cratered by as much as 30% during the worst of the pandemic, after countries told citizens to stay at home to prevent spreading the disease. As lockdowns ease, demand for gasoline in China and the U.S. is spurring a nascent recovery while demand for many products, particularly jet fuel, remains muted.

Scheduled maintenance on Gunvor’s 88,000 barrel a day Rotterdam refinery was postponed during the crisis. The refinery turnaround has now begun on a small scale following government virus safety regulations, according to a Gunvor spokesman, and the plant remains closed.

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