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Billionaire trader Banga, the former chairman of Singaporean trading giant Noble Group and one of the best-known names in the commodities world, officially launched the new trading firm at a lavish party in the heart of Hong Kong on November 1.
Caravel, a billion-dollar business launched entirely with family money, will use its existing maritime business connections to carve a space in the crowded raw materials trading arena, Banga says.
“We are building a unique business strategy with a competitive edge,” Banga told Steel First. “[We are] offering an end-to-end strategy for the supply and logistics of dry bulk raw materials.”
Leveraging off the family’s established asset management and shipping businesses, Banga has added to the mix a trading company with a focus on steel raw materials to create a diversified conglomerate.
Banga co-owns Fleet Management, a long-established shipping business which he bought from Noble for $75 million earlier this year. The ship-manager hopes to have a fleet of 300 vessels in management by the middle of 2014 and is in the final stages of negotiating shipbuilding contracts for its first six ships.
“The outfit aims supply a full suite of products and is leveraging its established shipping and logistics business to Asian steel mills,” Banga says.
“We have a logistical edge with our shipping business and, as a niche player, we can be quick, nimble and take advantage of the information we share among us,” he added.
Niche participant Caravel’s size, specific focus on steelmaking raw materials, and logistical advantages gained from its discrete shipping business, will set it apart from its competitors, Banga says.
“Caravel comprises three different businesses. It is not specifically focused solely on commodity trading,” he said.
“We have an asset-management arm which deals with public equity and credit investments, as well as alternative investments, including private equity and hedge funds. All capital for this comes from the family, we are not raising third-party capital,” he explained.
“While we will be participating in the major seaborne trade flows, we will be more focused on niche segments, in terms of products as well as origination and markets,” he added.
With the hiring of former Clarksons freight and iron ore broker and Jefferies iron ore trader Kerry Deal, Caravel is also looking to become a notable participant in ferrous derivatives.
Caravel started trading iron ore derivatives in the second week of November, just days after it launched.
“While the focus will be on the physical trade, we will use the derivatives market as a risk-management tool,” Banga said.
Growth plans With the world’s largest trading houses – Noble, Glencore, Cargill and Trafigura – already accounting for a large proportion of the traded seaborne iron ore market, Caravel is entering a crowded and competitive arena.
While Caravel aspires to grow to a sizeable stable of 50 personnel in the next year, its business model is different from that of the established trading giants, according to Banga.
“There are a number of participants in the segments that Caravel plans to operate in, but we have our own unique strategy and plans, drawing on the extensive experience of the members of the team,” Banga said.
“The decision to launch the resources business was driven by what we have seen from a supply-and-demand basis and leveraging our existing relationships,” he added.
Initial focus Although Caravel plans to offer all constituent products to steelmaking clients eventually, its initial focus will be on iron ore.
“Our iron ore team in essentially in place, and this is the first segment to get off the ground,” Banga said, adding that the group executed a number of physical iron ore trades ahead of its official launch date.
Given that direct sales from BHP Billiton, Rio Tinto and Vale account for a large proportion of the seaborne iron ore market, with traders vying for access to other sources of spot tonnages, establishing a foothold in the market is not a straightforward task for newcomers.
Banga remains circumspect about the details of Caravel’s iron ore sourcing plans, but said that the company’s stable of highly experienced ore traders had the ability to locate ore from miners outside the majors with a mix of structured offtakes and spot trades.
In terms of sales, Caravel is looking to its home Asian turf in the first instance.
“Our main customers in the first phase of our development will be in the Asia-Pacific region,” Banga said. “These range from state-owned enterprises to private-sector steel mills, ferroalloy producers and participants in the energy space in the region.”
High profile The media has been eager to highlight Banga’s ties with Noble, noting the raft of high-profile names Caravel already numbers among its staff, which include a number of former Noble traders.
One of the biggest such names is Henrietta Lee, former co-head of Noble’s iron ore business, who now stands at the helm of Caravel’s iron ore business.
But Banga, who retired from executive responsibilities at Noble in 2010 after 30 years, and stepped down as the trader’s vice-chairman emeritus in March, stresses that Caravel is neither an offshoot of the Asian trading giant nor in direct competition with it.
“We have our own benchmarks and we do not plan to emulate any of our peers or any of the larger existing participants in our space,” Banga said.
Operational bases The Banga family no longer holds any shares in Noble, having started to sell out of their stake in the trader in 2010.
And while Noble’s home town of Singapore has become the undisputed hub of Asia’s flourishing commodities trading industry, Banga has chosen to base his new venture in rival city Hong Kong.
In addition to its Hong Kong base, Caravel will open commodity trading offices in Beijing, Singapore and India in the coming months, and is considering expansion into the Philippines and Indonesia.
As Caravel expands its geographical footprint, it also plans to expand its product offering into other bulk raw materials, including coke and coking coal, as well as ferroalloys.
“The firm will start operations in other products in the next quarter,” Banga said, “which will include dry carbon products and other minerals.”