The French bank BNP Paribas and theNew York asset manager Apollo Global Management are collaborating on a new business venture aimed at helping manufacturers cope with global supply chain challenges.
The two financial services giants have created a new unit called Eliant that will buy and hold inventory for clients and then sell the goods to those clients as needed, using a new software platform that tracks everything. Clients will include large, multinational companies in sectors including retail, technology, industrials and manufacturing, health care and health tech.
BNP Paribas will provide debt and receivables financing and structuring advisory and referral services to Eliant. Athene, a subsidiary of Apollo, owns the equity of Eliant and will provide the majority of the debt capital, with the balance coming from BNP Paribas. Apollo will provide structuring and origination support to Eliant and oversee Athene’s investment in the business. The companies will split the proceeds according to their relative level of investment.
“I think this gives both of us an ability to offer something to clients that the market doesn't really have the ability to offer,” said Ephraim Rudman, partner at Apollo Global Management.
The service can’t magically fix supply chain issues such as a
Supply chain shortages have “put in the front and center what is always the push and pull between clients trying to manage most efficiently their working capital and at the same time, keep the flow of inventory available for their production cycle and meeting the demands of their consumers,” said Suresh Subramanian, who leads the Trade and Treasury Solutions Americas business in BNP Paribas' Corporate and Institutional Banking division. “The last couple of years have put a lot of focus on the importance of resilience in the supply chain and have made clients rethink some of their historical assumptions around having minimal inventory on the balance sheet and just-in-time inventory.”
These deals will involve “critical use inventory,” materials that the companies need to produce their core products.
An example is semiconductors in the automobile sector. If an auto manufacturer had anticipated the chip shortage and contracted ahead of time with Eliant to buy extra inventory, it may not have had to halt its production cycle when chip makers became backed up.
“That's where Eliant would be able to step in, make the financial commitment to buy those inventories up front, which in turn supports the suppliers,” Subramanian said. “It gives the automaker the resilience they're looking for in their supply chain.”
The automaker would need to state in advance its needs for semiconductor chips over the next 12 months and agree to pay for the chips as needed at a premium.
“It would not solve all problems of all shapes and forms,” Subramanian acknowledged. “There could always be disruptions that are not covered by the scope of what this can do. But if a company has identified that the raw material is critical and there is an ability for Eliant to buy those inventories in anticipation, chances are the company will be better equipped to handle pressures in the supply of that component.”
Eliant’s software will provide an interface between suppliers, Eliant and the buyers, Subramanian said. It will be especially helpful for clients that want Eliant to buy and then sell inventory to them on a continual basis, to track what's coming in and out, Rudman said.
