Banks see commod credit crunch easing; caution rules

SINGAPORE (Reuters) - Trade finance conditions for commodities firms have improved since the credit crunch last year, but banks remain wary of more corporate failures, and club-style deals are key, two banks said on Monday.

"Confidence is better than last year, definitely, and there is liquidity, but for the right deal," Graham Murray, regional head for Structure Trade & Commodity Finance at Japan's Sumitomo Mitsui Bank, told a conference.

"If the deal fits and ticks all the boxes, the banks will come on board. But there are not that many deals that tick all the boxes."

He added that companies with strong credentials and track records were favored.

Finance markets have been difficult in the first six months of the year, and are likely to remain so for the rest of 2009.

"The risk appetite is still cautious, with tighter documentation and stronger covenants," Murray said.

"Banks are looking at shorter tenures -- not more than one year and in some exceptions, three years. There's a flight to package deals or club deals."

Club-style deals combine several partners to share the risks from the financing.

Ravi Saxena, Head of Citigroup's Asia Pacific Trade, Export and Agency Finance, said banks remain worried about the health of corporate balance sheets.

"The market seems to be expecting a second wave of corporate bankruptcies, and banks are still very cautious as corporate earnings are still under stress."

Saxena said smaller companies were feeling more of the pinch as banks are increasingly wary of taking on small clients.

Sumitomo's Murray also said that loan restructuring is the name of the game for aluminum and steel companies reeling from a collapse in prices as demand wilted during the global downturn.

"The restructuring of structured deals provides a longer payback, but at a cost. Clients and banks have no choice after prices collapsed and some companies became illiquid," he added.

Global steel prices have tumbled more than 70 percent in some regions since hitting a peak in mid-2008 as the global crisis depressed demand in the construction and automotive industries.

Prices of aluminum, used in transport and packaging, have also roughly halved in value since hitting an all-time high in July last year.

Inventories have struck record highs almost consistently this year as the recession crushed demand for the metal.

But good assets going for a song can be found in difficult times, and these acquisitions are driving trade financing deals, Murray said.

"The acquisition of commodity assets like mines, storage and ships, in steel and grains -- these deals are bubbling."

(Editing by Ramthan Hussain)