Commodity Trader ED&F Man Agrees to Sell Part of Brokerage Unit

(Bloomberg) -- ED&F Man Holdings Ltd. agreed to sell a part of its brokerage unit as the commodities trader sheds assets to focus on its core business.

The London-based company, best known for hauling sugar and coffee across the globe, is selling the structured commodities business of ED&F Man Capital Markets, its brokerage unit. Investment firms Albright Capital and De Jong Capital will take over the business, which will be renamed as HedgePoint.

The deal comes as commodities are back in focus, with prices of everything from copper to soybeans rallying as China’s economy recovers from the coronavirus pandemic. Even crude oil, which was battered by the health crisis that destroyed fuel demand around the world, is seeing signs of recovery after Saudi Arabia unilaterally decided to cut output.

“People are taking long-term views on commodities and that has brought new demand, especially food commodities that were kind of on the back burner,” said Heber Cardoso, who leads ED&F Man Capital’s structured commodities business. “That brings huge opportunity for the commodity space again.”

ED&F Man has been trying to turn its business around after years of losses. The company has been selling non-core assets and last year got the go-ahead from a London court to refinance more than $1 billion in debt after the coronavirus delayed the sale of units that would be used to pay down loans.

The deal includes the sale of the structured commodities division’s company in Switzerland, which concluded on Dec. 31, and the business in Brazil. The latter is subject to regulatory approvals and the transaction is expected to complete in the first half of the year, Cardoso said. Terms weren’t disclosed.

Expansion Plans

The re-branded business, HedgePoint, will employ about 100 people in Switzerland, the U.S., Brazil and Argentina, Cardoso said. It will focus on helping customers in the commodities supply chain with risk-management tools and technology.

“We will expand very much so in Latin America and the U.S. and the EMEA region right away,” he said. “We will be hiring quite a few people in the market. Then we will branch out to different commodities within those regions. That’s the first focus,” with Asia expansion following soon after, he added.

The deal to sell the structured commodities business will help ED&F Man appease lenders who have pressured the firm to shed assets and improve profitability. In November, Suedzucker AG, Europe’s top sugar producer with a 35% stake in the trader, said preliminary figures suggest ED&F Man will post a net loss for the fiscal year ended Sept. 30. That would be a fourth year of losses.

“This transaction allows ED&F Man Capital Markets to focus on our core activities while enabling the successfully incubated structured commodities business to continue its expansion plans,” said Chris Smith, chief executive officer of ED&F Man’s brokerage unit.

Shifting Currents

The coronavirus pandemic has shed a light on the fragility of global supply chains, with many companies and countries changing buying patterns. Agricultural commodities are a case in point, with several governments and food makers choosing to hold more stockpiles than they used to.

A weakening dollar has made materials denominated in the currency more appealing at a time equities are on a tear and the world is on a path to recovery from the pandemic. All of that has prompted speculators to pile back into commodity markets, boosting combined bets on rising prices to the highest in at least a decade.

“Instead of just immediately meeting your inventory needs, what you see now are companies, countries, governments, investors looking at commodities as strategic,” said Cardoso, who will be HedgePoint’s chief commercial officer. “You’ve got the likes of Warren Buffett taking large positions in trading companies nowadays.”

The structured commodities unit currently operates in 36 countries and handles more than 40 commodities.