Structured Trade Finance

Topics: Asset, Proposal, International trade Pages: 7 (1616 words) Published: December 5, 2012

Receipt of Request from potential client

Deal Structuring
Receive written request for Structured Finance product from a customer. Discuss the Business Proposal
Authenticate the request to ascertain that it is genuine.
Where applicable, check supporting documentation e.g. Audited accounts, Financial projections, proposed security, etc. Determine suitability of the client to the proposed solution. Assess all variables of the proposal e.g. Security, Transaction flow, and client’s ability to perform. If viable, prepare Term Sheet, if not viable decline the proposal.

Trade Finance House draws up agreements on :-
Transaction Flows e.g. Enlisting of collateral managers and description of the collateral management process (where applicable). Proposed Securities e.g. Commodity / Stock, Insurance, Credit Risk Insurance, etc. Required Documentation to carry out transactions e.g. The Request, supporting documentation (i.e. Bills of Lading, Invoices, Promissory Notes, Bills of Exchange, Stock Report, etc.) Outline tenors for liquidation of transactions e.g. 90days, 120days, 180 (for agricultural commodities, oil etc) Provide indicative pricing for the transaction e.g. is it LIBOR -based, Base-Lending in LCY, Specific to the instrument – e.g. Import Letter of Credit or Guarantees or Avalised Bills. Identify Risks and mitigants. i.e. Performance Risk, Transactional Risk covering the liquidation, commodity pricing, procurement, etc.)

Agreement of Term Sheet
Discuss the contents of the Term Sheet between the stakeholders (BDM, Customer, CRM). If Agreeable, proceed to issue the Final Term Sheet for execution, else decline the customer’s proposal.

Disagreements may arise due to: Client’s unwillingness to relinquish control of commodity, prohibitive cost of collateral management, unwillingness to provide additional security, issues around pricing – where none of the stakeholders is willing to compromise. It should however be noted that the client cannot have control over the collateral financed by trade finance house and that the client has to pay for cost of collateral management. The client also has to provide additional security if and when adjudged required by Trade Finance House

Execution of Term Sheet
Where the agreement has been reached the Unit Head will evaluate the content and where there is concurrence, will authorize the BDM to send to the customer. Obtain Customer’s acceptance by his/her signing and stamping on the document.

Presentation of Documents
Receive signed documents (Term Sheet) from the customer.
BDM will ascertain the signatures on the documents to confirm authenticity and present the same along with the proposal to Credit Division for evaluation.

In the event the documents are not signed, the BDM will have them properly executed by the customer.

Receive approved proposal from BDM Trade Finance Front Office. Verify the provisions in the Term sheet to ascertain bankability of the proposal e.g. contracts, relevant authorized documents, industry practice etc. Do the credit appraisal i.e. :-

* Financial performance ratios
* Sales and profitability- gross profit margin, general trend of turnover for the last three years. Liquidity- current/quick and working capital. * Gearing or solvency –Net Tangible Assets (NTA) i.e. should not exceed the industry standards of ratio * Balance Sheet – assets and liabilities (current and long term debts), shareholders value, External and * Director’s commitments, related company shareholding value etc. * Cash flow (historical/current).

* Sensitivity analysis:- viability of the project, payback period, breakeven point. * Company Shareholding:
* Identify directorship (should NOT be blacklisted).
* Integrity issues and Corporate Governance issues
* Identify related companies (industry).
* Management
* Professional qualifications and experience...
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