Raising Capital Against Metal Stocks: Process, Legal Frameworks and Arranger Economics

1 Overview

A borrower can unlock short-term liquidity by selling an LME-grade warehouse receipt to a lender at, say, seventy percent of spot value and repurchasing it later at a fixed price. Title passes to the lender on day one, giving perfected security. Daily variation margin keeps loan-to-value (LTV) inside mandate while the borrower retains supply optionality. Cash arrives without forcing outright inventory sales, and the metals book stays intact.

2 Chronology

Once the data room opens, a straightforward repo closes inside three working weeks. During days 0-2 the arranger receives stock lists, KYC files and a countersigned engagement letter. By day 5 the lender panel issues an indicative term sheet covering LTV, spread and approved sheds. Technical and legal diligence (days 6-15) matches surveyor tallies to warehouse records while counsel marks up the Global Master Repurchase Agreement (GMRA) and shed acknowledgments. Signing triggers electronic title transfer; funds hit within hours. The facility then runs thirty to one-hundred-eighty days under daily mark-to-market control. Thirty days before maturity the borrower elects to roll or exit.

3 Legal Backbone

Documentation centres on GMRA 2011 plus commodity annex. It locks in title transfer, margin rules and single-agreement close-out across every open repo. Lenders favour English law—even for metal stored in Busan or Johor—because netting precedent is deep. A local warehouse acknowledgment names the lender as owner of record and blocks unilateral release. Insurance endorsements rank the lender first-loss payee, and a control agreement over the margin account grants prompt recourse to posted cash or metal.

4 Commercial Benchmarks

Metal	LTV %	Tenor	Spread (SOFR+)
Copper Grade A	60-75	30-120 d	250-400 bp
P1020 Aluminum	55-70	30-150 d	275-425 bp
SHG Zinc	55-68	30-120 d	300-450 bp
Nickel Briquettes	50-65	30-90 d	350-550 bp

Bands move with volatility. Copper trades inside nickel because liquidity on LME and CME is deeper; nickel’s sharper price swings pull LTV lower and spread wider.

5 Risk Hotspots

Price shocks, operational lapses and integrity breaches can crater a repo fast. A ten-percent overnight move in zinc triggers a margin call; a missed top-up forces liquidation at arm’s-length and may lock in a loss. Warehouse failure sits close behind market risk: the Qingdao episode (2014) exposed duplicate receipts across ports and cost lenders roughly USD 1 billion. Diversified shed exposure, AA-rated insurance and frequent audits are the principal mitigants.

6 Fraud Scenarios and Controls

Duplicate receipts, counterfeit stamps and cargo substitution are the classic fraud plays. Access World (Rotterdam 2020) found scrap in bags labelled nickel; three years later rubble surfaced under valid LME receipts. Control starts with dual-control custody of original documents, blockchain receipt registries to flag double pledges, and real-time lot tracking via RFID or tamper-evident seals. Independent surveyors sample at funding and spot-check mid-tenor. Any discrepancy routes through the GMRA event-of-default pipeline within two business days.

7 Covenant Package

Credit drift is policed through a fixed covenant grid. An availability reserve—often five to ten percent of headline LTV—absorbs grade or location concentration. Borrowers commit to minimum liquidity of USD 5 million and to keep net-debt-to-EBITDA under four times. Weekly reports reconcile stock weights, hedge ratios and payables ageing. Breaches push the repo into early-termination, triggering close-out valuation and, if needed, liquidation.

8 Rate Drivers

Spread flexes with four quantifiable factors. One-percent extra thirty-day copper volatility adds roughly thirty basis points. Location matters: Tier 1 hubs such as Rotterdam or Antwerp clear ten-to-fifty basis points inside Asian regional sheds. Investment-grade credit trims twenty-five-to-seventy-five basis points despite the title-transfer nature of the repo. Concentration risk—over half the metal in one shed—adds ten-to-thirty basis points.

9 Arranger Economics

Arrangers—banks, boutiques or law firms—earn USD 100 000-300 000 at mandate. On closing, a success fee of two-to-four percent of gross proceeds pays out pro rata per draw. Borrowers also cover third-party costs: surveyor invoices, legal opinions, courier charges. Financely prices at the lower end when multiple facilities sit inside a framework.

10 Lender Universe

Active desks include ING, BNP Paribas, Natixis, Rabobank, Standard Chartered; Asian branches of Japanese mega-banks; commodity houses such as Trafigura, Mercuria and Glencore; plus structured-credit funds seeking floating-rate exposure secured by metal. Sovereign wealth entities occasionally backstop large copper programs to align with strategic stockpiles.

11 Tax and Accounting

Under IFRS 9, the arrangement books as sale-and-repurchase: metal remains at cost in inventory while a financial liability records the funding. The repo fee is interest, deductible in most OECD jurisdictions subject to thin-capitalisation rules. VAT stays neutral while the metal remains bonded.

12 ESG Angle

Lenders may shave ten-to-twenty-five basis points for lots carrying LME sustainability passports or certified recycled origin. Discount size tracks provenance transparency more than absolute carbon intensity.

13 Default Waterfall

Two missed margin calls trigger an event notice. Substitution rights freeze, and the lender appoints an independent broker to auction metal inside five business days. Proceeds cover principal, accrued repo fee and unpaid margin. Any shortfall nets under the GMRA; confirmed surplus returns to the borrower.

Market levels reference Q2 2025 data from OECD warehousing hubs and may change without notice. Financely Group acts strictly as arranger; we do not issue lending commitments. This document serves informational purposes only.