Trafigura's buyback headache grows amid fresh wave of exits
Trafigura has deferred about 30 per cent of the buybacks that were scheduled for this year, according to sources familiar with the matter. Among current and former Trafigura traders, many of whom have the majority of their wealth tied up in the company, conversations have turned to whether the commodity trading giant will delay part of next year's planned repurchases as well, the sources said.
Share buybacks are the main way that Trafigura rewards the roughly 1,400 employees that own the company, and have been a conduit for vast riches in recent years. The deferrals mean its current generation of traders face a less certain future, at the same time as some of its rivals are going on aggressive hiring sprees.
The departure of a large number of longstanding top executives has piled pressure on the company because it commits to buy their shares back in instalments when they leave. The departures are also coming after a period of extraordinarily high profits, which has inflated the value of the shares due to be bought back. Already in the six months to March, Trafigura spent more money on buybacks than it made in net profit.
Trafigura does have wide discretion about how much to spend on buybacks, and a source close to the company said that any decision about next year's buyback would only be made after the end of Trafigura's financial year in September. The source highlighted that the company's group equity of US$16.2 billion at the end of March was well above a self-imposed minimum of US$15 billion, and represented nearly 20 per cent of its total assets, also well above a ratio of 15 per cent that the company considers to be comfortable.
Over the past two years, Trafigura's three top executives all retired from their jobs, culminating in only the second CEO transition in the trading house's history.
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The departures have continued this year with a fresh wave of senior exits, including Hadi Hallouche, head of Trafigura's downstream oil division, Julien Rolland, head of strategic projects, and Ignacio Moyano, the chief risk officer.
More are leaving from the middle ranks of the trading house: former crude trading head for Asia and Europe Daniel Yuen is joining Millenium Management, while head of Asia carbon trading Rushan Pandya is leaving to join Mercuria Energy Group, according to sources familiar with the matter.
At the same time, the company's profits are also under pressure. While Trafigura continues to report earnings far higher than any time before 2020, its profits have fallen from the highs of 2022 to 2023 when the market fallout from Russia's full-scale invasion of Ukraine helped lift earnings across the industry. When Trafigura reported half year results in June, it warned of trading headwinds.
Sources familiar with the matter said that the company took a hit earlier this year in gas, where prices have tumbled since February. Meanwhile, its sprawling zinc smelting business Nyrstar remains under severe pressure from a tight market for raw materials.
The company is also still trying to rebuild its reputation after a series of scandals, ranging from alleged frauds against it in nickel and Mongolia that have cost it more than US$1.5 billion, to a corruption conviction earlier this year in Switzerland.
The situation has made for a challenging first few months in the job for Richard Holtum, who took over as the third chief executive officer in Trafigura's history in January. Bloomberg reported last year that he had told staff he wanted Trafigura to focus on making money, and since taking the job, he has expounded a mantra of making the company 'simpler', 'smarter' and 'sharper'.
Still, the large buyback bill has not stopped Trafigura investing, with the company forming part of a consortium to buy an oil refinery in France, as well as striking large prepayment deals in copper and iron ore. The trading house also recently returned to the bond market, raising US$500 million earlier this month.
'Trafigura's key financial metrics are at historically high levels, and shareholder returns do not constrain its ability to invest and grow,' the company said in a response to questions. 'In addition, the group maintains near-record liquidity, and its trading performance remains strong.' BLOOMBERG
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