Structured trade and commodity finance pdf
Structured Trade FinanceIt is supported by invaluable case study material. Introduction: What is structured trade and commodity finance? Impact of different lending rationales on the prospects of repayment; Typical structures; The acid test: Do structures work? Other cautionary tales; Documentation: Do's and don'ts; Conclusions; Information and where to find it; Glossary. John Macnamara started work in a London commodity trading company in , where he specialised in Islamic trade finance before moving onto countertrade and prefinance.
Structured Trade & Commodity Finance, The Future of Trade Finance / Transaction Banking
View all articles by James Sinclair. Structured trade finance products are used primarily in the commodity sector by traders, producers and processors. Banking corporations tailor these financing arrangements based on the needs of the client. Structured trade products are mainly warehouse financing, working capital financing and pre-export financing. Also, some institutions extend reserve based lending and finance the conversion of raw materials into products amongst other bespoke finance products.
Commodity producers stand to benefit from SCF by receiving financing to ensure cash flow is available for maximum output with the intention of repaying the loan once exports begin. Trading houses employ SCF largely as a means of risk mitigation to reduce their exposure to a single country or commodity; SCF allows them to mitigate any supply, demand or price shocks. Lenders seek out opportunities to help assist commodity producers in accessing new markets and customers, this also benefits them through gaining interest on the loan. This is done by isolating assets, which have relatively predictable cash flow attached to them through pricing prediction, from the corporate borrower and using them to mitigate risk and secure credit from a lender. If all proceeds to plan then the lender is reimbursed through the sale of the assets. Volatility in commodity prices can make SCF a tricky business.
Structure of a Typical Structured Trade Finance Arrangement
International financial transactions are based on several financing philosophies, whose application is affected by the course of economic growth and development within an individual national economy. STCF is " cross-border trade finance in emerging markets where the intention is to get repaid by the liquidation of a flow of commodities. To better understand the various STCF financing constructions and techniques, which are to be found with greater frequency in actual financing situations, a STCF modular system can be used. The STCF modular system consists in several levels, which identify the typical stages of each STCF transaction: a pre-export financing, a warehouse and transport financing, a tolling financing and an accounts receivables financing. When considering a STCF financing technique, in addition to defining and categorizing the commodity type and its trading practices, a detailed analysis of the specific risks involved, including the allocation of risk and the mitigation and avoidance of such risk, as these risks might be specifically applicable and appropriate to STCF financing techniques and transactions , shall be considered.