Volume 15/Issue 2 November/December 2016 www.gtreview.com
The story of Hanjin and the collapse of an
The new GTR magazine app is here GTR magazine is now available on-the-go with GTR’s new app, available to subscribers on all iOS and Android devices. Now you can enjoy GTR, the world’s number one trade finance magazine, straight from your tablet or phone.
• • •
Access all GTR magazine issues Access all GTR supplements: Asia, Africa, Mena, Export Finance, Sibos & Insurance Download and read all issues offline
Don’t have a GTR subscription? Try a free 7-day trial and receive full access to the app, as well as to the www.gtreview.com web archive.
Contents GTR November/December 2016
Editorial Editor: Shannon Manders GTR Americas editor: Melodie Michel GTR Asia editor: Finbarr Bermingham GTR Europe editor: Aleya Begum
On the Move
Events & Market Round-up
GTR SUSTAINABILITY FOCUS News
GTR FINTECH FOCUS News
GTR ASIA News
GTR AFRICA News
GTR AMERICAS News
GTR MENA News
GTR EUROPE News
Junior reporter: Sanne Wass Writers: Sofia Lotto Persio, Michael Turner Editorial director: Rupert Sayer
Design & production Head of design: Kris Ellis Middleweight designer: Mireia Márquez Junior designer: Elise Boevenbrink Cover illustration: Mireia Márquez
Marketing Marketing manager: Grant Naughton Marketing executive: Elisabeth Spry Marketing assistant: Judith Mülhausen
Events Director of events and operations: Anna Skinner Head of event logistics: Mark Daly Head of conference production: Jeff Ando Event manager: Georgia Bunning Senior conference producer: George Mitchell Conference producer: Rosie Madderson
Sales Co-founder and managing director: Peter Gubbins
GTR Directory manager: Sam Cheung Head of business development Emea & Americas: Safiya Merrique Business development managers: Beatrice Boldini, José Erasun Queenie Wong Senior account manager: Gosia Murakowska Advertising sales executive: Jason Fairbank
GTR events gallery
Delegate sales executive: Gokul Bhatia
GTR Asia Co-founder and CEO: Rupert Sayer Head of Asia Pacific sales & operations: Christie Davidson Business development managers: Emma Braithwaite, Eric Wicklund Senior event co-ordinator: Anna Vilka Conference producer: Aliza Mohsin
GTR SUSTAINABILITY FOCUS
Are banks serious about sustainability?
Representative, Dubai: Maninder Bhandari Contact anyone at GTR: email@example.com
London office: GTR, Exporta Publishing & Events Ltd 4 Hillgate Place, London SW12 9ER, UK Tel: +44 (0)20 8673 9666 Singapore office: GTR Asia, 19 Cecil Street #05-06, The Quadrant, Singapore 049704 Tel: +65 6653 5346/47
GTR FINTECH FOCUS
GTR ASIA Oh, ship! Industry leaders roundtable
Global Trade Review (GTR) is published six times a year.
Subscription rates for six issues: £550
Subscription rates for 12 issues: £990 (Save 20% on the second year)
US shale report
GTR is a CarbonNeutral® publication This magazine is printed on Galerie Art Satin, a totally chlorine-free paper, FSC® accredited and manufactured to ISO 14001 standards. Printed in the UK by CPI Colour, a certified CarbonNeutral® printing company using vegetable-based inks and water-based sealants. Both CPI and the manufacturing mill arecertified with ISO 14001 Environmental Management Systems standards, and both are Forest Stewardship Council® (FSC®) accredited.
xx 72 56
Trade finance funds report
Visit www.gtreview.com to set up a free 7-day trial
Banks open up to fintech
© Exporta Publishing & Events Ltd 2016. ISSN 1478-5269 Copying without permission of the publisher is prohibited.
For subscriptions call Gosia Murakowska on +44 (0)20 8772 3031
Dubai office: GTR Mena, Office address: B 38 IMPZ, Shk Mohd bin Zayed Road, Dubai, UAE Mailing address: P O Box 117660, Dubai, UAE Tel: +971 50 5519 982
Mexico’s great wall of resilience
Algeria: Beyond the barrels
Commodity trade finance survey ITFA Young Professionals roundtable
November/December 2016 | 1
Welcome to GTR November/December 2016
Warsaw ITFAâ€™s Young Professionals network convenes a roundtable in Poland. Shannon Manders reports.
GTR strives to bring its readers a truly global outlook. Here are some of the places that we have reported from for this issue.
Mexico City Melodie Michel heads to Mexico and finds a country recovering well from heightened political risk and regional recession.
Aleya Begum and Shannon Manders attend Sibos and report on the findings there.
Finbarr Bermingham chairs a meeting of industry leaders on the sidelines of the GTR Asia Trade & Treasury Conference.
GTR main editorial board
John Ahearn global head of supply chain finance, export & trade finance, Citi, New York
Baihas Baghdadi global head of trade and working capital, Barclays, London
Percy Batliwalla head of global trade and supply chain finance, Bank of America Merrill Lynch, Singapore
Charles Berry chairman, BPL Global, London
Dominic Broom global head of trade sales, BNY Mellon, London
Daniel Cotti founder & managing director, Cotti Trade & Treasury, London
Sebastian HĂślker head of structuring and implementation of SCF products, UniCredit, Munich
Julian Hudson chief development officer, political risk & credit, ACE Global Markets, London
Riza Kadilar senior country manager and representative for Turkey, Natixis, Istanbul
Simon Lay deputy CEO, Fimbank, managing director LFC, Malta
Christopher Lewis global head of trade services, Wells Fargo, San Francisco
John MacNamara global head of structured commodity trade finance, global transaction banking, Deutsche Bank, London
Jorim Schraven director, strategy department, investment and mission review, FMO, The Hague
Jonathan Solomon partner, Reed Smith, London
David Sullivan managing director, TFC Capital, Hong Kong
Ravi Suri managing director, co-global head, structured export finance, Standard Chartered, Dubai
Stuart Tait global head of trade and receivables finance, HSBC, London
Paul Thwaite head of transaction services, Royal Bank of Scotland, London
2 | Global Trade Review
Welcome to GTR November/December 2016
his issue’s cover story (pardon our French) is about the Hanjin Shipping crisis, the effects of which, our writer says, will permeate the industry for years to come. The South Korean shipping company’s failure is unprecedented, and we anticipate a global shake-up of the shipping industry, which for years has been plagued by overcapacity and ongoing losses. The fallout has been yet another reality check for the world of trade in a year that has been rife with talk of disruption. Whether it’s mobile banking, new payment technologies, auction-based online marketplaces or blockchain, the financial sector has its work cut out for it when it comes to staying on top of disruptive technology. There have been so many announcements related to distributed ledger technology, in particular, of late that it’s been difficult to cut through the bull“ship”. Our fintech feature rounds-up the recent key consortiums and accelerator programmes. Industry experts that we talk to say that it’s all very well and good for companies to be developing their own proprietary platforms, but that there’s probably only room for one or two enterprise platform technologies: the rest will likely be killed off. In fact, as this magazine goes to press, in a surprise move, banking
consortium R3 has just announced that it is open-sourcing its Corda platform and making the code available to the Linux Foundation’s Hyperledger platform, thereby shaking up the blockchain game. Perhaps, as the various platforms are whittled down, the end result will echo the rivalry between Apple (iPhone, proprietary) and Google (Android, open)? Technology aside, banks are also having to deal with the likes of the GAFAs (Google, Apple, Facebook and Amazon) of the world: firms that are building out their own trade finance capabilities. For one, Amazon earlier this year launched its seller lending programme, though which it provides working capital loans to sellers on its platform. It recently partnered with Yes Bank to provide sellers with unsecured financing at competitive rates to help them fund their stock purchases. Alibaba has been providing trade finance services to its buyers for more than a year. As these companies infiltrate the market, is this where future disruption will come from? How many more wake-up calls can the industry handle?
There have been so many announcements related to distributed ledger technology, in particular, of late that it’s been difficult to cut through the bull“ship”.
Follow us on Twitter: @gtreview Keep up with GTR’s latest news and videos on www.gtreview.com
Shannon Manders Editor, GTR firstname.lastname@example.org
John de Lange head of oil & gas, structured metals & energy finance, ING, Amsterdam
Sean Edwards chairman, ITFA and head of legal, SMBCE, London
Francisco Javier Fernández de Trocóniz head of global trade finance and international FIs, BBVA, Madrid
Rüdiger Geis head of product management trade, Commerzbank, Frankfurt
Nicholas Grandage partner, Norton Rose Fulbright, London
Andreas Hillebrand head of credit underwriting, corporate solutions, SwissRE, Zurich
John O’Mulloy managing director, trade finance & forfaiting, Standard Bank, London
Olivier Paul global head of trade and banking flow, BNP Paribas, Paris
Asif Raza head of treasury and securities services, Mena, JP Morgan, Dubai
Nick Robson managing director, credit, political & security risks, JLT Specialty, London
John Salter managing director, global corporate and FIs, global transaction banking, Lloyds Bank, London
Rogier Schulpen global head structured trade & commodity finance, Santander Global Banking & Markets, Madrid
John Turnbull global head of structured trade & commodity finance regional head of trade finance Emea, SMBC, London
Federico Turegano global head of natural resources & energy financing, Société Générale, Paris
Geoffrey Wynne partner, Sullivan & Worcester, London
November/December 2016 | 3
On the move news
Crown Agents Bank expands with four appointments
rown Agents Bank (CAB) has made a number of appointments, including Duarte Pedreira as the new head of its trade finance department, as part of a postacquisition expansion strategy. The bank is bringing in four senior leaders to its London-based trade finance, commercial, credit risk and anti-financial crime teams. The expansion forms part of a strategy to grow CAB’s capabilities, especially in trade finance and correspondent banking, and to strengthen its reputation in emerging markets. It follows its acquisition earlier this year by Helios Investors, a fund advised by the Africa-focused private investment firm Helios Investment Partners. Pedreira joins from AIG where he held the role as manager of international trade credit. He started his trade finance career in 2005 at the London office of Banif Bank and has since held senior roles at Caspian Sea Capital and Standard Bank in Africa. Commenting on his new role, Pedreira says: “We have the ambition to be the leading trade finance provider across the world’s emerging
“CAB will continue its expansion during a time of retreat by mainstream banks.” Richard Jones, CAB Duarte Pedreira, Crown Agents Bank
markets – and especially to underserved markets. I’ve had a strong focus on these markets throughout my career, I understand the challenges they present as well as the opportunities they offer.” CAB has also appointed Colin Westlake as its sector head of commercial banks, where he will lead the bank’s effort to link commercial banks within emerging markets to major money centres. Before joining CAB, Westlake worked at Standard Chartered for more than 38 years, most recently as head of network banks Europe. Paul Nolan joins CAB as its money laundering reporting officer and head of the anti-financial crime team. Having worked for 30 years at Citi and Northern Trust, his responsibilities at CAB will encompass all aspects of anti-financial crime including
fraud, anti-bribery and corruption. Finally, Simon Harris has been appointed as nonexecutive chair of the credit risk committee, where he will be in charge of CAB’s credit risk policies, principles, procedures and portfolios. Harris joins with more than 30 years of experience in credit risk, particularly in Africa and Asia. He has previously held senior roles at HSBC and most recently as regional credit officer for Africa and Europe at Standard Chartered. “Crown Agents Bank will continue its expansion, with the aim of enhancing our services to existing and new clients during a time of widespread retreat from emerging markets by mainstream banks,” CAB’s group CEO Richard Jones says in a statement.
TrustBills grows management group
amburg-based TrustBills has appointed Christian Schmitt as its senior vicepresident of investor solutions. Schmitt will be responsible for institutional investors and the asset management division of the online platform for buying and selling trade receivables. Schmitt, an industrial engineer, brings over 20 years of experience in asset management and investment banking. As a
4 | Global Trade Review
former managing director of Risklab, an Allianz Global Investors company, Schmitt has significant experience in providing advisory services for institutional investors. Commenting on his new role, Schmitt says: “I am looking forward to creating the ideal trading environment for investors on TrustBills’ trading platform.” Founder and managing director, Jörg Hörster, says: “Schmitt will be advising institutional investors in
Christian Schmitt, TrustBills
the professional handling of TrustBills. We are certain that in this crucial phase he will contribute significantly to the success of our marketplace.”
Other moves Octet, a global supply chain finance management platform, has appointed Marius Savin as its first executive in Europe. His arrival as the group’s Europe representative signals further growth for the Australian company, which earlier this year recruited global experts from NAB, Citi and IBM to ramp up the global expansion of its platform. In his new role, Savin will be responsible for growing the Octet business community in Europe by onboarding additional financial institutions and businesses of all sizes, from multinationals to SMEs, in the region. Savin brings over 15 years of banking and finance experience to his new role. He previously held positions at Standard Chartered, Fimbank and UniCredit.
UK Export Finance (UKEF) has appointed Pat Cauthery as head of its aerospace and defence business. He replaces Gordon Welsh in the role, who became head of the business group in May 2016. Cauthery most recently led UKEF’s strategy development, policy and communications activities as head of the chief executive’s office. Before that, he spent seven years in the aerospace team, overseeing transactions including UKEF’s first capital markets-funded deal to support the export of Airbus aircraft to operating lessor Aercap, and the first export credit agencysupported A380, delivered to Qantas.
On the move news
Desserre takes helm of Société Générale GTB
enoît Desserre has been appointed global head of global transaction banking (GTB) and deputy head of transaction and payment services (GTPS) at Société Générale, replacing Christian Berhaghel, who has retired. In his new role, Desserre will continue SocGen’s GTB development. He will directly oversee corporate cash management, cash clearing/ correspondent banking, trade finance and factoring, with the support of the bank’s international network. He will report to Pascal Augé, head of GTPS. Desserre joined the Société Générale group in 1989. In
Benoît Desserre replaces Christian Berhaghel, who has retired. 1991, he moved to New York and then Dallas as senior relationship manager for large US corporates, before returning to Paris in 1995 to join and promote the international commodity finance department. He then took on the role of director of commodities and trade finance in Australia. In late 2003, he joined the French retail banking branch and in 2013, joined GTB as
Benoît Desserre, Société Générale
head of payments and cash management. He is replaced in that position by Aurélien Viry. Viry has been at SocGen since 1990. Since 2011, he has been a member of the management committee in charge of risk at Komercni banka, the bank’s subsidiary in the Czech Republic.
Willis Towers Watson boosts Asia team
illis Towers Watson has bolstered its Asian team with two senior appointments. The risk management, advisory and insurance brokerage has named Patricia Pang as executive director, financial services in Hong Kong. Within this role, she will be product leader for North Asia, focusing on credit, receivables and supply chain finance. Pang joins from Euler Hermes, where she was a business development manager in Hong Kong. Prior to this, she worked at the Hong Kong Export Credit Insurance Corporation for six years. Kirk Lee has joined at the same level, but will be responsible for regional financial institutions, based in Singapore. His role will focus on trade credit for regional financial institutions. He joins from Standard Chartered, where he worked in the trade and credit insurance unit of the transaction banking
“Global growth worries are likely to put pressure on Asia Pacific corporates.” Stuart Ashworth, Willis Towers Watson Kirk Lee, Willis Towers Watson
department. He has also worked as a credit and political risk insurance broker for Arthur J Gallagher and HSBC Insurance Brokers, as well as at Euler Hermes and QBE. Both will report to Stuart Ashworth, managing director of financial solutions, Asia Pacific, who says: “These are new positions that reflect our ongoing commitment to this high-growth region. Global growth worries and a rising US dollar are likely to put pressure on corporates and supply chains in Asia Pacific, and we believe our clients will benefit from enhanced, on-the-ground, credit risk expertise.”
Patricia Pang, Willis Towers Watson
He adds: “Willis Towers Watson recognises that its clients are under increasing pressure globally to grow their businesses in the face of constantly changing regulatory and capital requirements. These additional senior resources in the region will allow our clients to maximise their capital and manage their risks.”
Rebecca Mackenzie has joined Trade Finance Solutions as senior credit director at its London head office. Mackenzie has a strong track record in alternative financing and has previously worked at PNC Financial Services, Société Générale, Landsbanki Commercial Finance and Westpac Institutional Bank. At PNC, Mackenzie was a senior member of the deal team and worked with assetbased lending to refinance and fund acquisitions of UK SMEs across a range of industries, providing facilities for UK-US crossborder transactions.
Jamie Chambers has been appointed country manager for Hong Kong at XL Catlin. Chambers assumes the role in addition to his duties as regional product leader for Asia Pacific in the field of aerospace insurance. He joined Catlin, as it was then known, in 2005 before which he worked at Ortac Underwriting Agency in the UK as an aviation underwriter. He reports to Craig Langham, XL Catlin’s CEO for Asia Pacific insurance. The move came a week after XL Catlin announced the acquisition of Brooklyn Underwriting in Australia. Brooklyn is a Lloyds approved cover-holder and the acquisition will allow XL Catlin to expand its offering in Asia Pacific. The firm will continue to operate under the Brooklyn brand, but will be a wholly-owned subsidiary of XL Catlin. The deal is expected to close in the final quarter of 2016.
November/December 2016 | 5
On the move news
Ecobank appoints new head of UK
dward George has been named the new head of Ecobank UK in London. He will continue to serve as the bank’s head of group research, a role he has held since 2014. With the new appointment, George will oversee the operations of the four teams and 10 staff that make up the UK representative office of the pan-African bank. He reports to the recentlyappointed head of Ecobank in Paris, Ibrahima Diouf. Commenting on his new responsibilities, George tells GTR: “My job is to continue building the rep office’s operations and showing that we can funnel business into Africa, and also get ourselves out to the market here in London. The focus of our
“Brexit could be a huge opportunity for driving more business to Africa.” Edward George, Ecobank Edward George, Ecobank
business will be treasury, corporate banking, financial institutions/international organisations and research, and we hope to expand our services in the future.” George has worked at Ecobank for the past five years. Before joining the bank, he was a senior economist at the Economist Intelligence Unit, specialising in commodities in Africa. “It’s such an interesting opportunity, London as a
market for Africa,” George adds. “There are so many investors and institutions that use London as a gateway for investing into Africa. So it’s all about us using the right model so that our banking platform in Africa can be leveraged. It’s great to be able to try and influence the way that we develop this,” he says, adding that Brexit could be a “huge opportunity” for driving more business to Africa.
Scipion creates head of trade finance role
ommodity trade finance fund Scipion Capital has appointed Paul Baker as head of trade finance, a newly-created position. In this role, Baker will oversee the company’s trade functions, reporting to the firm’s chief investment officer, Nicolas Clavel. He previously worked within SMBC’s structured trade and commodity finance department – which recently
underwent an overhaul – until November 2015. Before his eight years at SMBC, Baker was director for metals and mining in the commodity finance department at West LB, and held a variety of trade finance positions at international financial institutions including Citi, UFJ Bank, UBS, ING and BNP Paribas. Scipion believes the creation of a dedicated head of trade finance position
6 | Global Trade Review
at the bank in 2000, working in the structured finance team for eight years, including two in Houston, where he headed up the structured financial solutions team for energy and resources. In 2008, Westrik left ABN Amro for RBS’ energy and resources department, where he spent six years in various
Société Générale has announced that Stephen Swift will be its new head of global finance, from the beginning of 2017. He replaces Sadia Ricke, who will become chief country officer for the UK on January 1, 2017. Swift will report to Hikaru Ogata, CEO Asia Pacific, and Pierre Palmieri, global head of finance. He will be based in Hong Kong. The global finance business includes structured financing, debt capital markets, syndication and advisory services.
Paul Baker, Scipion Capital
will allow it to strengthen resources and diversify its teams within the trade and asset-raising functions.
Westrik takes natural resources helm at ABN Amro eroen Westrik has been named ABN Amro’s global head of energy, commodities and transportation (ECT) clients, natural resources. He was previously ABN Amro’s head of sector origination, natural resources, since 2014. Westrik started his career
David Herbert has rejoined Deutsche Bank, taking up the position of director, trade sales, trade finance UK and Ireland. He reports to Russell Brown, head of trade finance for the UK and Ireland. Herbert had previously spent five years with Bank of America Merrill Lynch, where he recently headed the Western European trade sales team. Before this, he was with Deutsche Bank London for 15 years.
positions before re-joining ABN Amro. Under Westrik’s leadership, the natural resources team will focus on global market leaders in metal and mineral reserve extraction, chemical product manufacturing and the production of construction materials such as cement, asphalt, glass and bricks.
JP Morgan has appointed Kiat Seng Lim global head of financial institutions (FI) for treasury services, in addition to his current role as head of FI sales, Asia Pacific. Lim joins the bank’s global treasury services management team and reports to the global head, Jeff Bosland. He will continue to be based in Singapore. He joined JP Morgan in 2012, having previously worked in Deutsche Bank’s global transaction banking business for 12 years.
At your side worldwide. Now including São Paulo. Avail yourself of our worldwide presence to increase your corporate success.
Global challenges require local expertise. That is why we recently established a presence for our clients in São Paulo too: Commerzbank Brasil S.A. Banco Múltiplo, Avenida Dr. Chucri Zaidan 1240, 11th Floor, 04711-130 São Paulo, Brazil, Phone: +55 11 4766-1600, email@example.com, www.commerzbank.com.br The magazine‘s readership selected a list of nominees, which were judged by financial experts and editors, who honoured Commerzbank for its market position, innovation and international expertise. World Finance, 07/08 2016 issue
On the move news
Trio of partners for HFW
nternational law firm Holman Fenwick Willan (HFW) has appointed three new partners in its Geneva base to boost its commodities trading offering. Olivier Bazin, a finance lawyer with over 15 years of experience in trade, commodities and emerging markets, will join the firm in January 2017. Bazin specialises in crossborder finance, structuring and negotiating transactions in the soft and hard commodities sectors, and advises on debt restructuring and work-out situations. He has previously worked for law firm Norton Rose Fulbright, and most recently in-house at BNP Paribas in Geneva.
Other moves “There is a challenging environment right now in terms of geopolitics. Banking and finance is going through turbulent times and is a sector that is under huge scrutiny. I’m really looking forward to working out solutions with banks, traders and other clients: producers in particular,” Bazin tells GTR. Bazin’s appointment follows that of partner Georges Racine, who joined HFW in August, and Sarah Hunt, who was promoted to partner in April. Racine has wide-ranging experience in corporate, commercial and international business law. Hunt acts for a range of trading companies, charterers and owners in disputes involving petroleum
“The sector is going through turbulent times and is under huge scrutiny.” Olivier Bazin, HFW
products, cement, coal, ethanol and soft commodities. Michael Buisset, head of HFW’s Geneva office, says: “The appointment of these three partners significantly strengthens the offering of our Geneva office. The firm’s continued investment in this market means that we are able to offer clients the capability they require in the markets in which they operate.”
EDC opens London office
xport Development Canada (EDC) has opened an office in London, aiming to expand its presence in the UK. Following the UK’s vote to leave the European Union, trade projections between Canada and the UK could drop by up to 8%, but EDC says it is confident about the long-term opportunities between the two countries. The role of the London office, headed by Stephen Wilhelm as regional vicepresident, Europe, Middle
East and North Africa, will be to provide financing to UK businesses or project owners working with Canadian suppliers, or where there is potential for Canadian involvement. “EDC has a history of taking long-term views on the economic strength of countries and sees the potential for stronger trade links between Canada and the UK in the future,” says Wilhelm. “Our permanent presence will help solidify our
position as a go-to financier within London’s banking community.” “We provided C$6.7bn in financing to companies in the UK in the past five years, and we plan to grow that number incrementally over the next five,” he adds. The Canadian export credit agency already works with over 600 customers that are involved in trade between Canada and the UK, including Bombardier for its projects with Transport for London.
He joins from HSBC, where he held a number of positions, most recently as the global head of the transaction management group within the risk distribution unit of HSBC’s global trade and receivables finance division. Dasgupta’s career has spanned nearly 20 years in investment and transaction
banking, consultancy and technology with companies including ABN Amro, Citigroup, SunGard and PriceWaterhouseCoopers. Dasgupta comments on his new role: “By ensuring our support is agile, digital, innovative and flexible, we can help UK companies succeed in the global marketplace.”
Dasgupta joins UKEF
he UK Export Finance (UKEF) has appointed Bhaskar Dasgupta as its new chief operating officer (COO). Dasgupta will lead UKEF’s operations and business management, including technology and directing digital transformation and change programmes.
8 | Global Trade Review
Everest Specialty Underwriters has hired Michael Gil as underwriter in its trade credit and political risk business. In this New Yorkbased role, Gil will be underwriting a broad range of structured credit and political risk transactions for lenders, exporters and investors with projects in the emerging markets. Gil joins from Zurich, where he worked for the past seven years, first as analyst, and most recently as senior underwriter in the credit and political risk insurance department.
Euler Hermes has announced a credit insurance joint venture with China Pacific Property Insurance Company (CPPIC). Headquartered in Shanghai, the venture will operate under the name CPPIC Euler Hermes and be managed by existing members of staff from both companies. CPPIC is the thirdlargest property and casualty insurer in China, but also one of only a few export credit insurers in the country. The two firms have worked in partnership, growing their joint trade credit portfolio, since 2011. China only opened its export credit insurance sector to private companies in 2013, meaning there are still large untapped opportunities in the market, especially as sluggish trade growth is expected to lead to a 20% increase in business insolvencies in the country in 2016. According to Euler Hermes, payment delays are rising.
On the move news
Ghani is new Westpac head of trade finance
dnan Ghani has joined Westpac as head of trade finance. The experienced trade banker joined from Commonwealth Bank of Australia, where he spent three years as head of trade, based in Sydney. Prior to this Ghani was global head of trade at RBS in London, having held a
similar role at ABN Amro, where he worked from 1996 to 2008. Ghani has chaired BAFT’s Global Trade Industry Council and been a member of the expert’s panel on trade at the WTO. At Westpac, he will be responsible for the sales, product and risk portfolio management functions of the
Other moves bank’s international trade finance business. Gerry Gannon had been acting global head of trade finance, corporate and institutional banking since February. Ghani will assume these responsibilities, and it is understood that Gannon will remain with Westpac in another capacity.
Mizuho hires new Emea head of export finance
izuho Bank has appointed Tim Lamey as its head of export and structured finance, Emea. Based in London, Lamey will report to Motoo Matsumoto, head of Mizuho’s global finance department for Emea. In his new role, Lamey tells GTR, he will continue Mizuho’s work to broaden its exporter and borrower relationships and expand the bank’s ECA business across the Emea region, especially Europe. “Mizuho has been involved in the European ECA space for about four of five years, so it’s a fairly new part of the business,” Lamey says.
“The intention is to work on building that European ECA business up in terms of support of exporting and contracting clients, and of borrowing and project sponsor clients as well.” Lamey has worked in export finance for more than 25 years. He joins Mizuho from BNP Paribas, where he has held various export finance roles over the past 15 years. Most recently he was based in Singapore as BNP Paribas’ head of export finance for Asia Pacific. “There are obviously some obstacles at the moment in the market,” Lamey adds. “The transaction pipeline is probably not at the level it
“The transaction pipeline is not at the level it has been previously, partly due to the China slowdown.” Tim Lamey, Mizuho Bank
has been in the previous two to five-year period, partly due to the low oil and gas and commodity prices, partly, I think, due to the China slowdown and various political uncertainties. But I do still see opportunities to look at building the pipeline back up.”
Two trade experts join Fluent’s board
S-based Fluent, a fintech company developing a blockchain platform for trade finance, has appointed Dan Juliano and Anthony Brown to its board of advisors. Brown has worked for more than 30 years as an import-export trader, trade financier and risk and supply chain specialist. He is the founder and CEO of the trade consultancy Trade Advisory and was previously head of international trade finance at Bibby Financial Services.
Brown has held a range of senior trade finance roles in the past, including that of CEO and co-founder of Trading Alliance Corporation and head of the international division at GMAC Commercial Finance. Juliano joins Fluent with 25 years of experience in enterprise software. In 2003, he co-founded the supply chain finance platform PrimeRevenue, where, until June 2016, he was senior vice-president of business development. Today, he is the
owner of BCJ, a consulting firm that helps technology companies and financial institutions with trade finance and working capital solutions. Juliano is the second former PrimeRevenue employee to join the Fluent team, following Terry Pierce’s appointment as vice-president of customer strategy in June 2016. Fluent’s CEO, Lamar Wilson, says the two new appointments will assist the fintech firm in go-to-market strategy, product development and sales.
Markel has appointed Arjan van de Wall as director of development, Americas, in its trade credit and political risk operation in the US. Based in New York and reporting to Philip Amlot, head of the trade credit and political risk team, van de Wall will be responsible for business growth across the US, Canada and Latin America. Van de Wall joins from Euler Hermes, where he spent the past 11 years, most recently as commercial director, Americas. He has over 26 years of experience in the trade credit industry, including 10 years at Atradius.
Law firm Watson, Farley & Williams (WFW) has hired Samuel Kolehmainen as a partner in its asset finance team in Singapore. Kolehmainen is an aviation finance specialist and joins from Clifford Chance, where he spent five years, most recently as a senior associate in the city state. At Clifford Chance, he specialised in advising lessors, lenders and borrowers in aircraft finance transactions, according to the legal directory Chambers and Partners. This was his second spell at Clifford Chance. From 2008 to 2010 he worked as a transaction lawyer in the firm’s Frankfurt office. Kolehmainen has also worked for aircraft operating lessor Amentum Capital in Dublin, Merilampi Attorneys and Rautaruukki, a construction company, in his native Finland.
November/December 2016 | 9
On the move news
Barclays Africa names new head of trade
avid Renwick has been tasked with running both global finance and trade for Barclays Africa, bringing the two businesses within one group for the first time. The bank’s global finance business incorporates its longterm finance activities: project, resource and acquisition finance, as well as debt capital markets and vanilla debt (both investment-grade and subinvestment-grade). Renwick tells GTR that the bank took the decision this year to bring its Africa-focused global finance business together with its trade capabilities (which includes vanilla flow and structured trade and commodity finance) under one roof. Within this new framework, he says the bank will “maximise on
opportunities in the market that may have been missed by not being more closely aligned in the past”. As an example, he explains, the bank has historically been successful in the development of renewable energy plants in Southern Africa, but that it has traditionally not taken full advantage of the structured trade opportunities linked to these deals. The aim now is to bring these two businesses closer together. “There’s a real opportunity to start to compete with the more heavy-weight actors and trade finance houses in the region,” he says. Renwick has been with Barclays Africa for the last five years and before that held positions at Investec in the UK and Standard Bank in South Africa, covering all
More changes within the Barclays Africa trade team will be announced shortly. aspects of long and short-term finance. His new title is head of global finance and trade at Barclays Africa. He tells GTR that more changes within the trade team will be announced shortly as the bank realigns and brings new leadership to its structured trade and vanilla flow businesses. Renwick replaces Jason Barrass, who was previously head of Africa trade at Barclays Africa, but who recently left the bank.
Capital Chains grows with two new hires
utch training and consultancy company Capital Chains has expanded its team with two new appointments. Specialising in training and consultancy on financial supply chain management issues, Capital Chains was launched in 2015 by Steven van der Hooft. Speaking to GTR, van der Hooft says he is expanding his team to three people to help grow the business and meet the rising interest from banks and multinational corporates. Joost van den Hondel, who joins as partner at Capital Chains, has more than 18 years of experience in the financial services industry and has previously held senior roles at Ernst & Young, Capgemini and ING. He is the initiator and programme manager for Betaalme.nu (Pay Me Now), a not-forprofit initiative that aims to
10 | Global Trade Review
ease SME suppliers’ access to reasonably-priced liquidity. Matthijs van Bergen will be the company’s new consultant. Before joining Capital Chains, he worked as a researcher in supply chain finance at Windesheim University of Applied Sciences, and as an independent consultant, advising companies on financial and operational matters to optimise their performance. “Joost is an experienced programme manager, who will be able to lead some of the longer programmes,” van der Hooft says. “Matthijs will have a more analytic, strategic focus.” With his new team, van der Hoof’s aim is to reach more clients internationally. “We can do more projects on a global scale, using our experience that we have gained working with various clients in the banking sector
Joost van den Hondel, Capital Chains
Matthijs van Bergen, Capital Chains
as well as the corporate side,” he says and adds that he is intending to expand further. “We are growing. We are now a team of three, and hoping to grow to between five and 10 within the next two years.”
Swiss export insurer credit agency Serv has appointed Peter Gisler as its new director, effective from January 1, 2017. Gisler will succeed Herbert Wight, who is retiring at the end of the year. Gisler will join Serv from engineering company ABB, where he is currently the global head of export and trade finance and oversees letters of credit and guarantees, short-term trade management and customer finance. Prior to ABB, Gisler held various positions in export financing at UBS as well as being on the board at Aargauische Kantonalbank. “The board is convinced that Gisler has all the qualifications necessary to successfully develop Serv in a challenging environment ensuring it can continue to optimally support the Swiss export industry in international competition,” says Serv in a statement.
Bharat Gupta has joined Olam as regional head of trade and structured finance for Asia, the Middle East and Africa. Based in Singapore, he joins from fellow commodities trader Louis Dreyfus, where he spent six years in Dubai, most recently as the regional head of structured trade finance. Prior to this, Gupta worked for Cargill as head of corporate origination in India. This followed more than 10 years in the banking sector. He was head of transaction banking products for South Asia at Standard Chartered, and has held roles at American Express Bank, Citi and Barclays.
âˆ†Constructed. Financed. Exported. The moment of completion is always the highlight of any technological project. To successfully export skilful engineering needed in projects like these, German and European industries trust the experts at KfW IPEX-Bank. We have been offering our partners individually structured long-term financing solutions for over 60 years. We know our customers, their countries and industries. They can rely on us from start to finish â€“ from the idea behind it all along the entire development process to its global marketing. For further information about our bank and more special moments, visit us at www.kfw-ipex-bank.de
On the move news
SMBC names Americas export finance head
MBC Americas has appointed Anne Marie Thurber as executive director and head of export and agency finance Americas, part of the bank’s global trade finance department. She joins from Zurich, where she was executive vice-president of the global credit and political risk business for the past 15 years. Before that, she led the Latin America and the Caribbean political risk insurance team at the Multilateral Investment Guarantee Agency (Miga) for over two years. Her 25-year experience also includes six years as director of the Centre for Innovation in Social Entrepreneurship
(CISE), as well as roles at the US Overseas Private Investment Corporation (Opic) and Skandia America Reinsurance. Jonathan Joseph-Horne, global co-ordinator of export and agency finance in SMBC’s global trade finance department, says: “We are delighted that Anne Marie has joined SMBC. Her experience with the credit insurance markets and the multilateral agencies, as well as her leadership skills, will add further depth and breadth to our global export and agency finance offering and complements the client coverage of borrowers and exporters SMBC undertakes
“Her experience will add further depth and breadth to our finance offering.” Jonathan Joseph-Horne, SMBC
on a global basis.” SMBC’s New York-based export and agency finance team is organised as follows: Brad Dunderman, who recently joined from Motorola, leads the insurance placement team and Thurber, on top of her team head role, will lead the agency coverage team, in which Philip Janoff continues as senior coverage officer.
ATI appoints new chief underwriting officer
he African Trade Insurance Agency (ATI) has hired John Lentaigne as its new chief underwriting officer (CUO). He succeeds current CUO Jef Vincent, who is due to retire in early 2017. The two will work closely together during the transition phase, from October 2016 until Q1 2017. “After a comprehensive recruitment process, we are confident that we found
the best person to head our business department,” says George Otieno, CEO of ATI. “John brings over 13 years of experience in political and credit risk underwriting. Combined with his deep industry knowledge and networks, he is uniquely qualified to successfully lead ATI toward continued profitability.” Lentaigne joins ATI from Brit, where he served as the co-head of political and credit
John Lentaigne, ATI
risks in London. He has also held positions at Axis, Catlin and Ace Global Markets (now Chubb).
Deutsche Bank strengthens in Japan and Korea
eutsche Bank has made two senior additions to its trade finance teams in Japan and South Korea. Masahiro Goda has been named head of trade finance and working capital advisory after leaving his role with Mizuho in Singapore. He was most recently executive director for global trade finance for the city state. Jae-Sun Rah has been
12 | Global Trade Review
appointed head of trade finance and working capital advisory for South Korea. He joins from Citi, where he was most recently trade product head for trade and treasury solutions in Korea. Both report to Shivkumar Seerapu, head of trade finance and working capital advisory for Asia Pacific. Seerapu says: “South Korea and Japan have been successful franchises for us
and we will continue to build on our strategy to serve our large Korean and Japanese clients globally and our global multinational clients in these key markets. Both are relatively mature markets with large sophisticated clients who need complex solutions, an area of particular strength for us. These hires demonstrate our commitment and aspirations in these markets and to this business.”
Michael Vallance has been appointed as the new head of Santander’s UK transaction banking and cash management division. Vallance joins with over 30 years of experience in the sector. He has previously worked within Citi’s treasury and trade solutions team, as well as for Barclays. Most recently he was the managing principal at global consulting firm Capco, with a focus on transaction banking and payments. Vallance has also worked at Santander in the past – in 2006 he was briefly head of strategy and development. In his new role, Vallance will be in charge of the management and sale of Santander’s transaction banking products offered to high-growth mid-market and corporate clients, including domestic and international payments and receivables, e-channels, liquidity and information reporting, e-commerce and alternative payments products. Based in London, Vallance will report to John Carroll, managing director of products and international business.
Francois Martin is the new senior country officer for Crédit Agricole in Hong Kong. He will manage the bank’s entire operations in the city, in what is a newly-created role. He most recently headed up Crédit Agricole’s oil and gas department in Paris, having joined the bank’s previous guise Crédit Lyonnais 30 years ago. Martin reports to Michel Roy, senior regional officer for Asia Pacific.
What is Craftsmanship ? SM
To be crafted is to meet exacting standards. It’s the human touch that combines art and science to create something unique.
©2016 Chubb. Coverages underwritten by one or more subsidiary companies. Not all coverages available in all jurisdictions. Chubb®, its logo, Not just coverage. Craftsmanship.SM and Chubb. Insured.SM are protected trademarks of Chubb.
We tend to think about craftsmanship in terms of physical things: fine wine, classic cars, custom furniture and iconic structures. But what about the underwriting of insurance to craft protection for your unique and valuable things? And the service behind that coverage when you need it most — like claims and loss prevention? For your business. Your employees. Your home. The people you love. Things that need a particular kind of protection and service. The kind Chubb provides. Not just coverage. Craftsmanship.SM
Not just insured.
Events & market round-up
Swift mandates banks to tighten security
wift has unveiled the next phase of its customer security programme (CSP), established to support customers in the struggle against cyber-attacks. The controls will be mandatory by the start of 2018. This follows a spate of high-profile attacks at three of Swift’s customers earlier in the year. All of the cases started with Swift customers’ local environments being compromised, which is why it is now putting a lot of focus on the measures surrounding customers’ local security. Speaking at the Sibos opening plenary, Swift chair Yawar Shah reminded the audience that cyber-crime is a rapidly evolving threat. “Our community is under attack,” he said. His thoughts were echoed by Swift CEO Gottfried Leibbrandt in the same session: he said it was no coincidence that the threat to cybersecurity is happening just as the industry is starting to innovate. Swift’s CSP was launched at the end of May and incorporates five initiatives, from facilitating better information sharing to creating assurance frameworks. At Sibos, Swift took the initiative a step further by
publishing a set of core security standards and details of an associated assurance framework that all customers must meet to secure their local Swift-related infrastructure. “These both build on and complement the existing security guidance,” Stephen Gilderdale, Swift’s head of the CSP told GTR on the sidelines of the conference.
GTR understands), it is a scenario that is only going to escalate as new and emerging technologies gain traction: whether it’s the internet of things (IoT), the cloud or artificial intelligence. The IoT has created a “breeding ground” for cyber-threats, Leibbrandt told the audience during the opening plenary. “We’re never going to solve the cybersecurity threat – it’s going to be cat and mouse forever. When something new comes along, someone works out how to subvert it,” a global transaction banker who preferred not to be named told GTR at the event. “If you’re going to be in the
business, it’s the price of entry. And we all need to go into it eyes wide open.” With this in mind, the CSP’s standards and controls will evolve over time in line with the cyberthreat landscape, Gilderdale explained. Within trade specifically, it is generally believed that cybersecurity issues are secondary to more fundamental fraud threats because the industry has not been particularly successful at the digitisation of trade finance. “In trade finance, we are far from a cybersecurity problem: we have a paper problem and I think the issues are fundamentally different right now. That doesn’t mean that we don’t need to think about them as we digitise trade,” Michael Vrontamitis, Standard Chartered’s head of trade and product management, told GTR. None of the trade finance heads that GTR spoke with at Sibos had heard of Swift’s CSP, with some finding it odd that the company has taken 40 years to introduce this initiative, and others mooting that cyber-criminals may have a “window of opportunity” between now and the start of 2018, when the mandatory requirements are enforced.
The IFC will originate, structure and administer the loans on behalf of the fund in addition to providing first loss protection. The IFC protection will give Allianz insurance entities access to the loans, which historically have been funded primarily by international development institutions and
local banks. Allianz CEO, Oliver Bäte, says: “The partnership with IFC and our co-investment in infrastructure is a perfect example how Allianz can provide investment expertise to support the economic development of emerging countries as well as serve the interest of our customers.”
mandatory controls from Q2 2017. Enforcement, which will include internal and external audits, will start from January 2018. Any noncompliant customers will be reported to their regulators. While banks today face constant threats from hackers (who attempt intrusions as often as every 22 seconds, if not more frequently,
“We’re never going to solve the cybersecurity threat – it’s going to be cat and mouse forever.” Unnamed source
He said that the standards will be mandatory for all customers, who will be required to demonstrate their compliance annually against the specified controls set out in the assurance framework. According to a Swift factsheet, detailed security controls (16 mandatory and 11 advisory) which support three overarching security objectives and eight core principles will be published and fully validated with customers by the end of the year, coming into force at the end of Q1 2017. Swift will require customers to provide detailed selfattestation against the
Allianz and IFC pair up for infrastructure
ermany’s Allianz Group has made a US$500mn partnership agreement with the International Finance Corporation (IFC) to coinvest in infrastructure projects in emerging markets. The deal will work to bridge the investment gap in the sector and provide Allianz insurance
14 | Global Trade Review
entities with access to the loans. The agreement is made under the managed colending portfolio programme (MCPP), and will see Allianz’s investment co-invested alongside IFC debt financing. The transaction was structured by Allianz’s debt team, who will manage the fund on behalf of investors.
Career success in International Trade Finance Industry-leading qualifications in trade finance, documentary credits and demand guarantees, studied in over 80 different countries worldwide Certificate in International Trade and Finance (CITF®) CITF provides trade, export and commodity executives with a thorough understanding of the key international trade procedures, practices and legislation. Certificate for Documentary Credit Specialists (CDCS®) The worldwide benchmark qualification for documentary credit practitioners providing practical knowledge and understanding of the complex issues associated with documentary credit practice. Certificate for Specialists in Demand Guarantees (CSDG®) CSDG enables demonstration of a high level of expertise in this field and improves knowledge of the complex issues associated with demand guarantee best practice.
88% of student said CITF has helped their professional development/ career prospects
of students said the industry would benefit from more professionals completing CSDG
Find out more and register at libf.ac.uk/trade-finance
The preparation for CDCS enriched my knowledge with useful information and the case study on trade helped me to solve the issues incurred at work quickly and firmly. CDCS helped me to get a salary raise and also a good reputation at the bank.
Nguyen Thi Phuong Nga, International Payment Department
Events & market round-up
Baroda, Standard Chartered support commonwealth trade finance
ank of Baroda, India’s third-largest bank, is to lend US$40mn to small members of the Commonwealth. The finance will be guaranteed by the Commonwealth, the member organisation of former countries of the British Empire, and is part of an initiative to stimulate lending to the 31 smallest states in the group. Standard Chartered is also set to lend money into the facility, although Nicolas Langlois, the bank’s global head of trade distribution, tells GTR that no final agreement has been reached around how much will be lent, or what the terms of the finance will be. In the case of Bank of Baroda, the US$40mn will be disbursed through banks in member states. “This transaction will help us to support the smaller
“The transaction is intended to provide these banks with access [to finance] they don’t have and is commercially structured to be sustainable and help trade in these countries.” PS Jayakumar, Bank of Baroda
banks in a manner which serves these customers and markets better. It is a financially well-structured transaction. It is intended to provide these banks with access they don’t have and is commercially structured to be sustainable and help trade in these countries,” Bank of Baroda chairman PS Jayakumar said at the signing ceremony in Malta. The Commonwealth secretary general, Patricia Scotland, says that the Commonwealth Trade Finance Facility (CTFF) will better connect Commonwealth
countries to an international trade finance system they often sit on the outside of. “Trade is the lifeblood of economies and never more so than for small countries. Yet they simply can’t access the international financial system. According to the WTO, 80 to 90% of world trade relies on trade finance. One of our roles in the Commonwealth family is to champion these small states to make sure they can trade in global markets,” she explains. Over three years, the CTFF is expected to make US$100mn of incremental
trade finance available to the grouping known as the Commonwealth Small States. Typically, these nations have populations below 1.5 million, although Botswana, Jamaica, Lesotho, Namibia and Papua New Guinea are also classified as small states as they share similar characteristics. Initial equity funding has come from the governments of India, Sri Lanka and Mauritius. The Commonwealth fund was launched in December 2015. GTR reported at the time that there was an initial target of US$20mn. Commonwealth spokesperson Hannah Murphy said that the facility “could have a trade creation effect of 1:20 which implies that a facility backed by US$20mn is potentially able to generate additional trade of US$400mn annually”.
Trafigura closes oversubscribed RCF
rafigura has signed a syndicated revolving credit facility (RCF) and term loan facilities worth the equivalent of US$1.67bn. The facilities were initially launched at US$1.4bn, and closed oversubscribed, with the support of 25 banks. They include a 364-day US$1.19bn RCF, a three-year US$290mn term loan facility and a US$190mn-equivalent renminbi (Rmb)-denominated one-year tranche. ANZ, DBS Bank, United Overseas Bank (UOB) and Sumitomo Mitsui Banking Corporation (SMBC) were original mandated lead arrangers and bookrunners on the loan. They were joined by Industrial and Commercial Bank of China (ICBC), Overseas Chinese Banking
16 | Global Trade Review
Corporation (OCBC), First Gulf Bank (FGB), Westpac and National Australia Bank (NAB) as mandated lead arrangers (MLAs). National Bank of Abu Dhabi (NBAD), Mizuho, Bank of China, China CITIC Bank, Emirates NBD, Commonwealth Bank of Australia (CBA), Malayan Banking Berhad, Sumitomo Mitsui Trust Bank, KBC Bank and Union De Banques Arabes Et Francaises joined in the syndication. CTBC Bank was the active bookrunner on the Rmb tranche, along with ICBC and Agricultural Bank of China as Rmb MLAs. The Korea Development Bank, Land Bank of Taiwan, Mega International Commercial Bank and Taipei Fubon Commercial Bank
joined the Rmb tranche during syndication. The facilities will be used to refinance the maturing threeyear tranche signed in 2013, as well as the maturing oneyear RCF and one-year Rmb tranches from 2015. This is the fourth year that Trafigura’s syndicated financings have comprised an Rmb tranche. Christophe Salmon, chief financial officer at the commodity trader, says: “We are very pleased with the outcome of the syndication. Despite conditions in the syndicated loan market being more challenging, our banks have demonstrated their continued commitment to and confidence in Trafigura’s growth plans. “This also builds on the successful signing of our
“This builds on the signing of our flagship European multi-currency syndicated revolving credit facilities.” Christophe Salmon, Trafigura
flagship European multicurrency syndicated revolving credit facilities totalling US$5.1bn in March this year, which was supported by 45 financial institutions. The fundraising illustrates once again the strength and resilience of our diversified funding model, founded on a broad and stable set of banking relationships.”
Events & market round-up
ICC: Compliance needs global body
ompliance and regulation have been the biggest barriers for access to trade finance, according to over 90% of banks surveyed for the International Chamber of Commerce’s (ICC) latest annual review, leading the organisation to call for an independent global body to tackle the issue. The cost and complexity of regulatory requirements such as anti-money laundering (AML) and know your customer (KYC) were highlighted by the 357 global banks that took part in the survey. Meanwhile, 77% of respondents considered the Basel III regulatory requirements as a significant impediment.
Furthermore, 83% said they expect compliance costs to increase this year while 40% said they terminated banking relationships due to compliance requirements. The survey found that SMEs were the hardest hit, with 58% of declined applications falling into this category. This compared with 33% for large corporates and 9% for multinational corporates. Geographically, the highest rejection rates are faced by clients in Russia, Mena, and Sub-Saharan Africa. The chair of the ICC Banking Commission, Daniel Schmand, called on authorities to create a global body to work jointly with the industry and regulators to deal with the compliance issue.
Speaking at an EBRD conference in Frankfurt, Schmand suggested organisations such as the World Bank, World Trade Organisation (WTO), and the International Monetary Fund (IMF) should work to set up a standard set of transaction monitoring principles for trade finance. There are currently too many regulators, making it unclear to banks whether they should be following domestic regulation, the recipient bank’s foreign regulation, or international regulation. As a result, they avoid the transaction altogether, and the collateral damage of this needs to be brought to the attention of politicians and regulators, he explained.
The number of respondents that reported an increase in overall trade finance activity during 2015 was down to 52% compared to 63.3% in 2014. Close to 50% of respondents reported a decrease in the use of letters of credit (LC), compared to 35% in the year prior. However, around 35% of respondents reported an increase in supply chain finance (SCF) deals. The insights come on the back of WTO figures which report that between October 2015 and May 2016 there were 145 measures that directly restricted trade. The average of 21 measures a month is the highest level of trade restrictions since the organisation began monitoring this in 2009.
it means access to a new asset class that offers better risk-adjusted returns than many other securities,” global head of trade risk distribution Surath Sengupta tells GTR. In 2015, HSBC’s global trade receivable finance (GTRF) generated over US$550bn of documentary trade finance for its customers.
As part of the new offering the bank has trade risk distribution specialists integrated into its GTRF teams in London, Singapore and New York. “There is good interest from different types of investors. We have already done transactions with different investors,” adds Sengupta.
with additional synonyms and data points to increase the chance of catching high-risk goods that could be used in terrorist or rogue state activity. In September the European Commission (EC) added a 10th category to its dual-use exports control list. It proposed a new “human security” dimension to prevent human rights violations associated with certain cybersurveillance technologies. The new proposal is expected to come into effect within a couple of months. “This is the first time a
cybersecurity category has been included. We are reviewing the changes suggested in this 10th category and when it comes into force we will be adding it to the product too,” Accuity product lead, trade and compliance, Heather Lee tells GTR. An early user of Accuity’s screening capability, chief operations officer of commodity trade and finance at Rabobank, Sam Moonen, says the tool “makes carrying out our due diligence checks on trades easier and simpler” and helps mitigate the risk of making a mistake.
HSBC boosts risk distribution finance
SBC has built a multi-hub capability to encourage investors such as pension funds, asset managers and insurers to take part in the finance of cross-border trade. The bank will now offer trade risk distribution options, whereby it will invite other investors to participate in
Accuity offers dual-use goods solution
isk and compliance solutions provider Accuity has launched a dual-use screening capability to help identify goods in trade that could have both civil and military use purposes. The new tool will help flag goods that are on export control lists as companies and banks face increasing compliance regulation to intensify their efforts to fight financial crime and money laundering. “This [product] was client-
a transaction. Trade risk distribution allows a bank to meet the trade credit demand of a client when it exceeds an individual financial institution’s risk limits. Traditionally this is only done between banks. “It’s a relatively new investor base for trade finance which is picking up gradually. For certain non-bank investors,
led and has come out of our innovation track,” vice-president of product and strategy Tom Golding told GTR on the sidelines of the Sibos conference, where the new capability was launched. “Clients who are facing huge amounts of data checks to ensure their products do not fall foul of regulations had asked us to build an engine that will help detect irregular trade against official sanctions lists,” he explains The Accuity tool, which is aimed at banks and corporates with medium transaction volumes, enhances standard regulation lists
November/December 2016 | 17
Events & market round-up
ITFA’s insurance guidelines to “shake up market”
he International Trade & Forfaiting Association (ITFA) has published guidelines on the use of non-payment insurance policies. The “guidelines on structure and content for CRR-compliant non-payment insurance policies” were drafted by the association’s insurance committee and launched at ITFA’s annual conference in Warsaw. The documentation came about in response to a survey conducted by ITFA among its members last year. In the survey, members called for guidelines concerning the use of non-payment insurance as an eligible unfunded credit protection to credit risk mitigation under the EU Capital Requirements Regulation (CRR) No 575/2013. “For bank members, these guidelines are intended to provide a summary as to how the provisions of a nonpayment insurance policy may
comply with CRR,” reads the introduction to the guidelines. “This document should be considered guidance only: there is no ‘standard’ wording for non-payment insurance and each insurance contract will be tailored to mirror the underlying payment obligations,” the document explains. It adds that guidelines do not constitute legal advice. “Over the past six months or so we’ve seen some particularly poor wording,” says Geoffrey Wynne, trade finance partner and head of the London office of Sullivan & Worcester, speaking on the sidelines of the ITFA conference. “The guidelines will help shake up the market – the insurance market in particular. There may well be at the moment some dinosaurs saying: ‘It’s ok – I read that I can opt out, therefore you can have my same poor quality policy wording because I’m not changing it.’
But in a market which has overcapacity, why would you, as a broker, go to an insurer who will not listen to the need to make change?” The guidelines also provide an indication of what policy wording may be required in light of the new Insurance Act (IA) 2015, which came into effect in mid-August. IA applies to all contracts of insurance and reinsurance (or variations to current contracts) subject to UK law – covering the laws of England, Wales, Scotland and Northern Ireland – underwritten on or after August 12. Wynne calls IA 2015 a “revolution”. “It is restoring a balance that, for the best part of 100 years, was in favour of the insurer, which had a lot of people in banks saying: ‘There’s no point in taking insurance – they don’t pay.’ This reverses that,” he says. “Non-payment insurance is now a good product: that’s the message to get across. The fact that there are more
“Why would you, as a broker, go to an insurer who will not listen to the need to change?” Geoffrey Wynne, Sullivan & Worcester
players and there is more capacity is good news, because I think we will see more and more good use of insurance,” Wynne adds. According to Katie Fowler, a member of the ITFA insurance committee, the guidelines will target new entrants to the market – of which there are many – as these will benefit the most from the guidelines. Sullivan & Worcester provided legal advice to the ITFA drafting group. ITFA formally launched its insurance committee at its 2015 annual conference.
Trade finance learning gap presents risks to industry
he trade finance learning gap should be bridged before it’s too late, said speakers at the ITFA conference. ITFA formally launched its mentoring programme at the end of last year, and invited some of its mentees to speak at its annual conference. In a session titled “Teaching the next generation”, mentees Asif Dad and Michel Meylacq told the audience that mentoring plays a fundamental role in the careers of young professionals. They called for the industry to assist them in attracting more mentors and mentees to ITFA’s programme. “Young professionals are the future of the industry, and
18 | Global Trade Review
you can help shape that,” Dad said. The session addressed the needs of young professionals in the trade finance arena, finding these to chiefly be: access to resources, training and qualifications, and networking. The speakers highlighted the fact that the trade finance industry is “skewed towards experienced professionals”. According to a 2014 survey by GTS on global trade and transactional services, only a small minority (2%) of trade professionals currently working in the industry have less than two years of experience in the field. They recommended that
the learning gap within the trade finance industry be tackled “before it’s too late”. Speaking on the sidelines of the event, Sean Edwards, ITFA chairman, told GTR there is going to be a “deficit in the sort of people that understand trade”. “There are a lot of very experienced people in the industry, which you see if you come to these conferences. But eventually they retire,” he said. Edwards called for those leaving the industry to transfer their know-how, gained through their cumulative experience, to their younger colleagues. “It’s really important for them to pass on their knowledge: you don’t
get that through any training programme or through any textbooks – you can only get it through the one-to-one interchange with people who have been doing this business for a long time.” As the world of trade evolves, so banks – and their customers – are finding new and different ways of doing business. “So if we, as an industry, don’t evolve in the same way as our customers, then the industry does run the risk of potentially being not relevant to our customers. And we can’t have that,” Chris Hall, board member and head of ITFA’s Young Professionals network, told GTR at the conference.
Events & market round-up
Young BExA award winners have Africa in their sights From left to right: Geoff de Mowbray (BExA co-chairman, SME & micro exporters/Dints International); Shannon Manders (GTR), Earl of Kilmorey (BExA president); Nick de Lisle (joint winner/ NMS Infrastructure); Lord Mayor Locum Tenens, Alderman Sir Alan Yarrow; Freddie Tucker (joint winner/ Dints International); Marcus Dolman (BExA co-chairman, large corporates/ Rolls-Royce); Deborah Bass (BExA banking committee chairman/Crédit Agricole CIB); Susan Ross (BExA vicepresident/Aon); Terry Partridge (BExA SME & micro exporters committee co-chairman/RA Watts)
reddie Tucker, trade and structured finance director of Dints International, and Nicholas de Lisle, bid manager at NMS International, were both named winners of the GTR BExA Young Exporter of the Year Award. Both winners were chosen because of their impressive contributions to their companies’ success over the past year. Specifically, Tucker played an important role in the structure and completion of a recent Vendor Managed Inventory (VMI) product, which helped secure Dints, an industrial equipment supplier, a contract with African mining company Gold Fields Ghana. “Freddie spent two weeks in Ghana negotiating the export contract [Dints’ largest export transaction] to signature with Gold Fields Ghana. This contract will immediately create an additional US$6mn of export business for UK SMEs, with the expectation of this growing to US$100mn within three years,” reads Tucker’s nomination form, as submitted to the British Exporters Association (BExA) for consideration for the award. The judging panel, which included BExA leaders and GTR’s editor, was impressed with Tucker’s intricate knowledge of the transaction, and the fact that the financing solution is replicable and scalable. “We expect it to be a blueprint for the transformation and growth of UK exports,” reads the nomination. Tucker comments on his win: “It is a fantastic award to receive and I think this is reflected in the calibre of past winners and what they have gone on to achieve. BExA is a thoroughly respected organisation and key to the UK exporting industry, I am very honoured to be recognised by them. This award reflects the success of the past year with Dints and all the support we have
received from Sullivan and Worcester, Investec’s ECA team and UK Export Finance. I look forward to our continuing success and growth in coming years.” Meanwhile, de Lisle’s win was underpinned by his work supporting the business development team at NMS, an EPC contractor specialising in infrastructure projects in Sub-Saharan Africa. His nomination form makes reference to his “innate ability to understand the needs of NMS in winning new business”. Specifically, de Lisle played a key supporting role in the signing of a €208mn UKEF-supported contract for the design and construction of affordable housing for the government of Cameroon, which included structuring a complex contractual bundle. He also shone amongst a project team on a US$100mn healthcare project in Nigeria, which involves the design, construction and equipping of hospitals in Kaduna state, and a €240mn project in Zambia for the design, construction and equipping of 108 health centres and three 200-bed hospitals. “Nicholas demonstrated great leadership when negotiations broke down on price,” reads his nomination form. He then, on his own initiative, analysed all the costings, meticulously drawing direct comparisons with a similar previous project. “The result was to bring back to life what had become an abortive project.” His business-winning competency in some of the more challenging export markets impressed the BExA panel of judges. De Lisle tells GTR that his win would not have been possible without the support of the NMS directors, who have allowed him to take on greater responsibilities and learn from more
experienced personnel in the firm. Both winners see Africa’s rapidly expanding markets as key for UK exporters. “The statistics speak for themselves on why the future of trading with Africa is a great opportunity to UK exporters: according to the UKTI, 34% of companies become more productive within a year of exporting and 70% of businesses say exporting has driven innovation and the upgrade of products,” says de Lisle. “With the current slump in a majority of commodities, the time is right to continue infrastructure development to maintain economic momentum.” Yet, he warns that for exports to Africa to realise their full potential, an Aid for Trade product must be introduced. He suggests that such a product could be supported – and possibly administered – through the banking sector and would enable British exporters to structure projects that deliver benefits to the host nations. “The combination of UK government [UKEF and the Department for International Development – DfID] working in co-ordination with the banking sector and industry would be a powerful force for good,” he says. In other news, BExA recently launched its annual benchmarking of UK Export Finance (UKEF) in which it claims that it is pleased that UKEF has demonstrated “continued appetite for improvement and development”. The association’s cochairman, Marcus Dolman says: “BExA asks government to take advantage of the unique opportunity to drive export growth presented by Brexit and to deliver to UK exporters the government support required to promote exports. UKEF have embraced a culture of continuous improvement and BExA calls on the rest of government to follow their lead.”
November/December 2016 | 19
“I’m hopeful about manufacturing in Arizona” Snapshot Name: Dawn Grove
Company: Karsten Manufacturing Corporation – Ping
Export revenue: Approximately 50% of sales
Job title: Corporate counsel
Time exporting: About 50 years
GTR: Tell us about the company and its exporting journey. Grove: We are a privately-held family business started by my grandfather, Karsten Solheim, in his garage over 57 years ago. We have about 1,100 employees worldwide and distribute products in approximately 80 countries. When my grandmother, Louise Solheim, received our first international order from South Africa for two putters in the mid-60s, she went to the state office of the US Commerce Department to try to figure out how to ship them. Eventually, she came to the generous conclusion she should just send the putters as a gift because of the complexity. She later took a college class to understand exporting, which was essential as worldwide demand for Ping products continued to grow. All product development comes from our Phoenix headquarters, supported by our team of more than 60 engineers and researchers, with the vast majority of our product being assembled there. We have an assembly plant in England for distribution to Europe and one in Japan for distribution to Asia to support our global efforts. GTR: How do you finance your exports? Grove: We are probably highly unusual in the manufacturing business in that we are a debt-free company. When my grandfather first decided to build golf clubs, he went to a bank and requested US$1,100 to acquire a milling machine to make the molds for casting putter heads. The bank told him it would lend him money just this once, but he shouldn’t
20 | Global Trade Review
expect to come back for more, and after that he didn’t need to. That’s one of the ways we as a company have been able to manage the twists and turns in the golf market over the decades, by doing most of our own financing. We do extend credit to our customers, as we recognise that the world operates on credit, even if we try our best not to. We find we do not need to use trade finance products. GTR: What are the biggest challenges you face as a US manufacturer exporting internationally? Grove: One of our greatest challenges is the burden of regulations within the US: increasingly burdensome administrative and reporting requirements squeeze profits that could be better spent investing in new jobs or in increasing exports. When the US has one of the highest corporate tax rates in the world, it makes competing on a global playing field more challenging. We have our own foundry where golf club heads and other precision castings can be made, but decades ago we used to have several domestic foundries from which we could source golf club heads. Because of burdensome federal government regulations and competitive pressures, these other foundries stopped producing golf club heads or left the US altogether. In order to meet demand and stay globally competitive we have had to rely on selected foundries in other countries from which to source many of our golf club heads. Ping has teams embedded in the regions that work closely with global suppliers to ensure top quality and performance. Another challenge is wrongful tariffs and the difficulty involved in correcting them. For example, Ping pays a higher
tariff rate to import a component of a golf club than it would pay to import a golf club wholly made in another country. Instead, tariffs should be regularly reviewed and wrongful “inverted” tariffs corrected when needed. We are encouraged that the Miscellaneous Tariff Bill process has begun again in Congress after several years of being stalled. GTR: How do you feel about free trade agreements like the TransPacific Partnership (TPP)? Grove: Together with other Arizona manufacturers, we have been supportive of the TPP. We have seen an uptick in our exports to countries where the US has free trade agreements. GTR: Are you optimistic about the future of US manufacturing? Grove: I’m very hopeful about the resurgence of manufacturing in Arizona and the US. I see a growing understanding of the importance of actually making a product here and exporting it to the world. It benefits the world too, as many American manufacturers source essential components from around the globe. Manufacturing jobs pay higher wages than any other sector, and other states and countries are competing for these jobs. Government should provide a positive business climate for the manufacturing sector because manufacturing is a magnet for other supplier and service jobs. Arizona’s governor understands that and is doing a fantastic job attracting manufacturers, and Arizona is gaining jobs that are leaving California’s highly regulated and taxed environment, for example. In the US as a whole, there is some encouraging talk about the importance of promoting manufacturing, but a disconnect when it comes to federal policy and administrative actions, which hurts manufacturing in the states. Nonetheless, I’m encouraged that the US government is publicly recognising the importance of manufacturing to any growing economy and perhaps federal policy will catch up.
New possibilities, here I come
Youâ€™ve surveyed your market and staked new territory. With our knowledge of your sector, ING can help you energise your business. Find out how we can help you to connect around the world. For more information on ING Structured Metals & Energy Finance please contact + 31.20.563.5277 or visit our website ingwb.com.
World, here I come
ING Wholesale Banking has been awarded as a GTR leaders in Trade
GTR Sustainability Focus
Sustainable commodities report
Subscribe today Volume 15/Issue 1 September/October 2016
71 72 73 7
74 82 81
• ••• •••• •••••••••• •••• • •
Trade-based money laundering
• •••• •• •• ••• ••••• • ••
14 20 15 19 18 21
66 16 60
24 28 27
57 54 53 50
26 55 29 37 36 39 38 40
32 49 33 48 34
52 45 44 46
43 42 41
Joining the dots between trade finance and the internet of things
For more information email Gosia Murakowska at firstname.lastname@example.org
GTR SUSTAINABILITY FOCUS
Olam in sustainable palm oil first
lam International’s Awala palm oil plantation in Gabon has achieved RSPO certification, the world’s flagship certification of sustainable palm oil. In doing so it is the first new development to become RSPO certified in Africa. The certification by RSPO – the Roundtable on Sustainable Palm Oil – of Awala has boosted Africa’s total certified production hectares by 30% from 21,666 hectares, Olam
says in a statement. Speaking to GTR, Jean-Francois Lambert, founding partner of Lambert Commodities, says that while most of the RSPO-certified plantations are to be found in Indonesia or Malaysia, Olam’s certification in Africa is a sign that RSPO best practices are spreading across the globe. “This is going to strengthen the ability and credibility of a major trading house like Olam to reinforce its position vis a vis buyers and, beyond, the
consumers,” he says. Founded in 2004, RSPO has today 2,500 members worldwide from across the supply chain of the palm oil industry – from producers and traders to retailers, investors and NGOs. Earlier this year, one of RSPO’s founding members, palm oil supplier IOI Group, came under fire when RSPO ruled that the Malaysian company was not meeting the body’s standards and suspended its certification.
Sustainable trade finance not banks’ responsibility, survey finds
anks are not ultimately responsible for ensuring that a trade finance transaction is sustainable, according to a survey of industry professionals. Participants ranked financial institutions behind producers, government, manufacturers, traders and end users, meaning that it was the element of the transaction cycle perceived to carry the least responsibility. More than 100 people were quizzed by Westpac at the GTR Asia Trade & Treasury Week in Singapore in September, with just 12% thinking that financial institutions “have the most responsibility in driving sustainable trade”. This was one of the most surprising takeaways from a survey which confirmed in most part that sustainability is in the thinking of the trade business, even if it is not paramount in its thoughts. 96% of those asked said that sustainability is “an important deciding factor when choosing business partners and service providers”, however just 5% rank sustainable financing as the most important consideration in choosing their trade finance providers.
The most important considerations are still ease of transaction (44%) and pricing (27%), with sustainability also well behind banks’ product offering (18%) and only considered marginally more important than geographical scope. While many at the conference claimed not to have heard of initiatives such as the Soft Commodities Compact and the Sustainable Shipment Letter of Credit (SSLC), Westpac’s survey suggested that awareness is greater than those anecdotes reflected, with 37% claiming to be using the SSLC and 48% working towards zero net deforestation, as per the compact. Meanwhile, “regulations” are viewed as the biggest challenge to driving sustainable finance. Those polled also thought that “self-regulation” best encourages sustainability. Can self-regulation really drive sustainability? Wider industry has provided much of the impetus for the sustainability drive in soft commodities, with large buyers simply refusing to buy from producers that fail to adhere to accepted standards. Anecdotally, however, it
Just 5% rank sustainable financing as the most important consideration in choosing their trade finance providers. has been suggested that strong corporate monitoring can encourage sustainable practice. In June, the Singapore Stock Exchange (SGX) introduced legislation that obliges Singapore-listed companies to publish a sustainability report at least once a year. “The annual reporting of non-financial information will enhance the visibility of SGX-listed companies among investors who seek sustainable investment,” said SGX chief Loh Boon Chye at the launch. This, according to a straw poll of Singapore bankers, will force those who weren’t previously concerned about sustainability to wake up to the commercial imperatives. Perhaps the truth is somewhere in the middle: a combination of carrot and stick.
The ruling led a wave of major international companies, including Nestle, Unilever, Kellogg’s and Mars, to stop buying from IOI. The case has, according to Lambert, demonstrated the significance of the certification – and reinforced the credibility of RSPO. He says the main question, now, is how long it will take for the Chinese and Indian buyers of palm oil to value sustainability as much as their western counterparts.
EBRD boosts climatefriendly bio-fertiliser
he European Bank for Reconstruction and Development (EBRD) has awarded a €24mn loan to Moroccan agricultural inputs producer Elephant Vert, to support the increased use of sustainable climate-friendly products. Elephant Vert produces bio-fertilisers, bio-pesticides and bio-stimulants. The loan will help development, output and distribution of the products which are used to boost agricultural yields while remaining environmentally friendly.
Finnvera backs UK biomass plant
inland’s export credit agency Finnvera will support funding of the Tees Renewable Energy plant – the world’s largest power plant fuelled solely by biomass, to be built in the UK. The project, price tagged at £900mn, has now closed financing which consists of £650mn of debt and £250mn of equity. The debt is provided by 11 lenders in total, including £100mn from Finnvera, a spokesperson for project management group MGT Teeside tells GTR. The 299MW power plant will be fueled solely by clean wood pellets and chips.
November/December 2016 | 23
Sustainable commodities report
GTR SUSTAINABILITY FOCUS
Are banks serious about sustainability? Banks are making the right noises about sustainability, but action and innovation are lacking. Finbarr Bermingham reports from Singapore.
e are hurtling dangerously towards the 2 degrees Celsius increase in global temperatures from their pre-industrial levels that would set in motion increasingly dangerous forest fires, extreme weather, drought and other climate-based disasters. Over recent weeks, as the Paris Agreement gradually gained the requisite number of ratifications to be signed into force, there have been rare moments of optimism about our planet’s future. Countries, led by the biggest polluters, the US and China, have vowed to cap global warming at “well below” the 2-degree target, in a move that will have farreaching consequences for global trade. Between the time of US-Sino ratification of the Paris Agreement and the date in early October when it reached its target, GTR held its Asia Trade and Treasury Week in Singapore. One of the most prominent areas of discussion was sustainability. The conversations proved a sobering reminder of how slow the trade finance industry has been to awake to the challenges ahead. Good work has been done by
24 | Global Trade Review
researchers at the Cambridge Institute for Sustainable Management (CISL), in tandem with the Banking Environment Initiative (BEI), which have developed number of sustainable financing tools and initiatives. They have also established a forum in which these topics can be discussed and, according to Thomas Verhagen, CISL’s senior programme manager, are hoping to establish more regional and sectorspecific bodies to continue this. But very few in the industry seem to be aware of the products the CISL has developed. Those who have argue that some of the tools – the sustainable shipment letter of credit (SSLC) for instance – are already outdated. When everybody is looking to digitise their trade cycle, how useful can a sustainable LC really be? At a panel discussion in Singapore, the audience was asked whether they had used green bonds, SSLCs, or whether they were members of the Soft Commodities Compact. Despite the clear presence of member banks in the audience, nobody had heard of or used these tools and solutions.
Chris Pardey, the group CEO of commodity trader RCMA, said that he had been seeking financing for a sustainable investment in the UK but that no banks had shown any interest: their concerns were solely with the bottom line. Pardey hadn’t heard of any of the aforementioned sustainable products, despite spending more than 30 years in the soft commodities business. Verhagen is honest about the material success of the tools so far. “We’ve identified that the product we developed, the SSLC, is currently less effective than we hoped it would be. I have a background in innovation and they always say: ‘fail fast, fail cheap’. There’s no defaults so far so it’s been really cheap up to this point, but I do feel that we need to make a next step,” he admitted in Singapore.
Banks aren’t innovating Bruce Blakeman, a vice-president at Cargill, is also unaware of the SSLC and was unsure if Cargill had used green bonds. However, their sustainability activities are substantial. If they are not sourcing their coffee, soya or palm oil
Sustainable commodities report
GTR SUSTAINABILITY FOCUS
from sources that can be maintained continually, large buyers will simply look elsewhere. A case in point is the fate that befell Malaysian palm oil giant IOI earlier this year. In April, IOI was suspended from the Roundtable on Sustainable Palm Oil (RSPO) amid allegations that it wasn’t fulfilling obligations to stop deforestation in Indonesia. Immediately, a host of the world’s top commodity buyers, including Mars, Nestle and Unilever, dropped it as a supplier. Undeterred by the public outcry, IOI sued the RSPO, claiming no wrongdoing and that it had been “unfairly affected” by the suspension. In June, it dropped the case and agreed to take on an action plan to meet the RSPO’s highest level of accreditation by the end of this year. The episode shaved 17% from IOI’s share price and is a lesson to all parties not meeting their obligations. At a roundtable discussion held on the sidelines of the GTR event in Singapore, this financial cul de sac of sorts was seized upon by Perpetua George, assistant general manager for sustainability at Wilmar International. These tools, she said, are probably being pitched at the wrong organisations. “If you look at the transformation of sustainability on the ground, you are going to have to look at financing smallholders. There is no point in financing the likes of Wilmar or Olam, because they already have the ability to be sustainable,” she said. Wilmar is working with an unnamed Indonesian bank on a pilot which would offer lines of credit specifically for the sustainable replanting of oil palms. There is “considerable interest from the investment banking sphere”, and George says it will be beyond the microfinancing solutions often offered to smallholders in these industries. The problem with microfinancing is that farmers need to be financed for the first five years of replanting – the immature phase – in one shot. There is almost zero income in this phase, but thousands of smallhold farmers in a co-operative. In short, it’s anathema to the lending models of most commercial institutions. George’s assessment of the banking sector’s efforts is withering: “I wouldn’t say there are a lot of innovations right now. I think it’s been a struggle to even try and get this one. Many banks are not yet prepared to innovate.
“Traditional, local Indonesian banks can lend, but they will lend at 30% APR to the farmer. They can’t afford that, so how do you reduce that to make it more affordable to the farmer? You need to somehow upfront the risk sharing, which traditionally has only been done with the mill.” The suggestion is that traders are having to take matters into their own hands and drive innovation in the banking sector. Banks’ customers arguably don’t make the same demands of them as soft commodity traders. If Cargill isn’t providing sustainably sourced palm oil products, Unilever will go elsewhere. Banks do face similar pressures from their clients, but are usually grilled first on the cost of capital, rather than sustainability.
“You are going to have to look at financing smallholders. There is no point in financing the likes of Wilmar or Olam, because they already have the ability to be sustainable.” Perpetua George, Wilmar International
Is it reductive, then, to claim that banks will never be in the driving seat of sustainable financing? Does it require the leadership of commodity giants, along with government and NGOs, to instigate the changes required to meet Paris Agreement targets? It seems at this urgent stage to be a fair assessment.
Chinese banks unsure how to act China imports 60% of all the world’s soy beans and 11% of all palm oil – two of the most destructively-grown crops. Its importance to global supply chains is massive and growing. Deforestation is the second biggest culprit in carbon emissions after power emissions. It is thought that up to half of tropical deforestation is the result of illegal conversion of forested land into agriculture, much of the crop then being exported, and a lot of it ending up in China. In China, financial regulators have been looking at ways of “greening” the sector, with particular focus on these destructive soft commodities imports. A report authored recently by the CISL, BEI and the Research Centre for Climate and Energy Finance (RCCEF – a Beijing-based organisation) focuses
on the nascent progress. Verhagen, who helped write the report, tells GTR that CISL was approached by Chinese regulators to explore ways in which international practices can be implemented in China. He says the workshops were productive, but “clearly there is much to be done”. One of the key takeaways is the importance of regulators and authorities: banks in China are not acting fully on sustainability because they have not been told to by the powers that be. This reiterates the suggestion that banks will not change their modus operandi unless they’re cajoled into it. The report found that when it comes to overseas financing, the China Banking Regulatory Commission (CBRC) already requires Chinese banks to adhere to international sustainability norms. However, no guidelines exist on shortterm trade finance and the authors write that “without further specific guidance, Chinese banks are unclear what more is expected of them”. Furthermore, Chinese banks don’t necessarily subscribe to the various industry guidelines on palm oil, soya and so on. Will Chinese banks adopt these standards without being forced to do so by a government or regulatory diktat? We may never know, given the direction being pushed by the Chinese government, but history tells us it is unlikely. The negativity pervading this report is intentional. For years, talk has been cheap on the issue of sustainable financing but consequential action seems elusive. The Soft Commodities Compact, through which a group of banks agreed to finance products resulting in zero net deforestation, will be a huge boost if its targets are met: we await the results with interest. For now, banks are making baby steps in the right direction, without fully taking ownership of the problems: continuing to finance destructive projects and sectors with one hand, as they naval-gaze over how to be sustainable on the other. An example of the dichotomy is the coal sector, where in the wake of the Paris Agreement a number of banks have stopped directly financing new coal projects. The likes of BNP Paribas and Société Générale, however, will continue to finance coal projects in emerging markets. Consolidated action and thinking is required – and fast. If governments push through the required policies to meet the goals of the Paris Agreement, this is hopefully what we will get.
November/December 2016 | 25
GTR SUSTAINABILITY FOCUS
Championing sustainable trade: policies driving change
Shannon Manders speaks to Ricardo MelĂŠndez-Ortiz, chief executive of the International Centre for Trade and Sustainable Development (ICTSD), about aligning trade and investment frameworks for sustainable development outcomes and the role that financiers play in supporting these initiatives.
26 | Global Trade Review
GTR SUSTAINABILITY FOCUS
GTR: What headway are we seeing with the Environmental Goods Agreement (EGA) and UN climate talks? And once agreements are successfully in place, what will this eventually mean for financiers that back the trade of goods and climate-affecting projects? Meléndez-Ortiz: The Paris Agreement secured last December will soon come into force [November 4], following ratifications by major emitters including the US, China, India, and the EU. The EGA has a window of opportunity to be concluded this year. From an investment perspective, the Paris Agreement sends important market signals for the types of projects that both need support and are viable. The Paris Agreement’s climate goals require a major energy transformation, given that fossil fuels account for around 81% of the world’s energy mix and generate roughly two-thirds of anthropogenic greenhouse gas emissions. Bloomberg New Energy Finance (BNEF) and Ceres estimate that around US$12.1tn must be invested in new renewable power generation over the next 25 years to stay within a 2-degree Celsius temperature rise from pre-industrial levels. This amounts to US$5.2tn above business-as-usual projections over the period or US$208bn per year. Conversely, there is increasing recognition of climate-related investment risk due to the shifting value of assets as the world moves to a low-carbon economy (stranded assets) – noting that the total stock market capitalisation of fossil fuel companies is around US$5tn – as well as the risks to assets presented by climate impacts. As evident from these figures, the capital needed to move to a global clean energy system is ultimately not that significant for global financial markets to absorb, but supportive policies will be needed to align and scale up sustainable investment flows. Climate Investment Funds (CIFs) led by the World Bank are already providing support to tackle barriers to such investment. The E15Initiative – a joint trade policy, expert-led process by ICTSD and the World Economic Forum – also recommends establishing an international support programme for sustainable investment facilitation more generally, including by strengthening the capacity of least developing countries to compete in world FDI markets. The programme could focus on improving national regulatory frameworks in order to create attractive and enabling environments for investors. The Environmental Goods Agreement (EGA) talks were launched in July 2014 by a group of 44 countries, including significant trading players such as the US, China, Japan and the EU. The talks are geared towards eliminating trade tariffs on a select list of environmental products. Negotiators have met regularly in Geneva, Switzerland to identify which products will be included, timeframes for liberalisation and other operative aspects of the deal. Although trade tariffs generally have fallen over the
years with global and regional liberalisation efforts, these can still be a nuisance in a world of international production networks, where parts and components cross borders multiple times before resulting in an end product. Environmental products under discussion in the EGA include those related to clean energy, energy efficiency, air pollution control, water and wastewater treatment, environmental monitoring and analysis, among others. Negotiators are nearing what is hopefully the end game for hammering out the EGA. All participants have submitted lists of products for consideration and there is now a collective draft list that will be used for final bargaining in the coming weeks. Through the G20, select participants have signalled plans to conclude the agreement by the end of this year, a goal also endorsed by non-G20 economies.
“The capital needed to move to a global clean energy system is ultimately not that significant for global financial markets to absorb.” Ricardo Meléndez-Ortiz, ICTSD
The EGA should have positive cost-cutting impacts for certain climate-related projects as a result of tariff reductions for key inputs among the 44 participating countries. This may help to spur increased demand for clean energy-related projects in domestic markets, for example, or prompt producers elsewhere to seek out new export markets in those countries. These impacts can contribute to competitive, innovative and scaledup clean energy solutions, particularly in a world characterised by economies with different resources and factors of production. It will be important, however, for other countries to look at joining the agreement further down the line – tariffs on some clean energy products remain very high in some non-participating countries – and for governments to work on environmental services liberalisation and non-tariff barriers. Although this agreement will focus on goods, some participants have also called for the inclusion of a work programme on liberalising trade in accompanying environmental services and addressing non-tariff barriers to trade, both critical areas to boosting deployment of environmental goods. Non-tariff barriers (NTBs) can include diverse standards for various types of clean energy equipment, or limitations in access to energy transport or distribution services, for example. Services trade barriers and NTBs may be equally, if not more, prohibitive than tariffs to trade and global diffusion of environmental goods.
November/December 2016 | 27
GTR: What role can financiers play in promoting and incentivising such policies? Meléndez-Ortiz: The role of financiers is absolutely critical. From an investor’s perspective, policy signals by governments around transformational steps towards a low-carbon economy can prompt changes in levels of support for the kind of goods and services that we want to see playing an important role going forward. At the UN climate talks in December 2015, Michael Bloomberg launched a task force on climaterelated financial disclosures under the remit of the international Financial Stability Board (FSB). The task force will develop voluntary climate-related financial risk disclosures for companies to provide information to investors, lenders, insurers and other stakeholders. The information relates to physical, liability and transition asset risks associated with climate change. This transparency and exercise can be helpful in sending market signals to investors and re-aligning business models for sustainable development. The Bank of England’s governor and FSB chairman, Mark Carney, has outlined the nature of these risks for the global financial system: “Shifts in our climate bring potentially profound implications for insurers, financial stability and the economy,” he said in a speech at a Lloyd’s of London event in September last year. Further (paraphrased): “First, physical risks: insurance liabilities and value of financial assets that arise from climate property damage or disrupted trade. Second, liability risks: likely to hit carbon extractors and emitters and their insurers the hardest. Finally, transition risks: the financial risks which could result from the process of adjustment towards a lower-carbon economy.” That is probably one of the most important signals that has been given to investors in connection with the Paris Agreement and is a very important reason why financiers should be looking into these issues. Another critical market signal is carbon pricing. In a section on non-state actors, the Paris Agreement recognises the important role of providing incentives for emission reduction activities, including tools such as domestic policies and carbon pricing. Carbon taxes are now being established in several economies at various levels of jurisdiction. Increasing numbers of emissionstrading schemes are coming online as each year passes. Carbon pricing helps to capture the external cost of fossil fuel use, sending a strong signal to companies and
28 | Global Trade Review
GTR SUSTAINABILITY FOCUS
investors to shift from high to low emission practices and investments. It is a powerful means of spurring innovation and modernisation, and altering competitive advantages in favour of low-carbon economies. And fossil fuel subsidies are being phased out, even if not at the scale and pace that would be desirable so as not to counteract the effect of carbon pricing. GTR: Should financiers care whether or not they are financing sustainable trade? What responsibilities do they bear? Meléndez-Ortiz: I think that financiers are an absolutely critical piece in the economy, and if we are going to move the world towards a low-carbon economy, they bear a huge responsibility in doing so. There are both financial and normative reasons to care. Some estimates suggest that an average of US$2.5tn, or 1.8%, of the world’s financial assets are at risk from climate impacts if global temperatures rise by 2.5 degrees Celsius above pre-industrial levels by 2100.
“Financiers are an absolutely critical piece in the economy, and if we are going to move the world towards a low-carbon economy, they bear a huge responsibility in doing so.” Ricardo Meléndez-Ortiz, ICTSD
A new report from BlackRock – the world’s largest asset manager, responsible for more than US$4.9tn in assets – details how climate change presents asset risks and opportunities through four channels, including physical (extreme weather), technological (advances in batteries, electric vehicles, etc), regulatory (subsidies, taxes and energy efficiency) and social (changing consumer and corporate preferences). The report says that all asset owners should take advantage of a growing array of climate-related investment tools and strategies to manage risk, search for excess returns, or improve market exposure. The report adds that carbon pricing is the most cost-effective way for governments to meet emissions-reduction targets. Formal initiatives have encouraged investors to incorporate sustainable development criteria into
GTR SUSTAINABILITY FOCUS
their portfolios. They include the UN-backed Principles for Responsible Investment (PRI). Launched in 2006, the PRI supports international investors in reflecting and accounting for environmental, social and governance (ESG) issues, acknowledging that these can affect the performance of investment portfolios and investors’ fiduciary (or equivalent) duty. It is supported by the United Nations Environment Programme (UNEP) Finance Initiative and the UN Global Compact. There are also the Organisation for Economic Co-operation and Development (OECD) Guidelines for multinational enterprises (MNE Guidelines). These are voluntary recommendations from adhering governments on principles and standards for responsible business conduct across international production networks. The guidelines relate to areas such as employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition and taxation. In June 2015, the G7 group of major economies pledged to encourage enterprises active or headquartered in their countries to implement procedures to enhance supply chain transparency and accountability, for example through voluntary due diligence plans. Liability regimes and other forms of formal accountability are being developed as a result that can help augment investor and corporate responsibility in the transition towards sustainable trade and low-carbon economies. Similar efforts on labour conditions in international supply chains are underway through the G20. What we are saying in very simple words is that if you are an investor today and you don’t care about these things, it is no longer a question of 20 years’ time but in two, three, five years’ time, you are going to see your investments rendered without value. GTR: What key issues is the ICTSD championing when it comes to sustainable trade? Meléndez-Ortiz: ICTSD’s work on trade and investment policy governance is driven by the understanding that the frameworks and incentives put in place by governments shape outcomes in the global economy. Ensuring international trade and investment frameworks to support sustainable development outcomes has been at the core of the organisation’s mission for the last 20 years. [It is celebrating its 20th anniversary this year.] ICTSD champions sustainable development outcomes by acting as a knowledge provider and knowledge broker for policymakers and stakeholders around trade and investment. Policy research undertaken by ICTSD relates to areas such as farm trade (agriculture products and food security), supportive trade policies for tackling climate change and boosting clean energy and energy efficiency, conserving oceans and fisheries resources, trade and development, trade and environment, innovation and intellectual property, services trade such as finance, logistics, insurance and so on, and the digital trade agenda.
“If you are an investor today and you don’t care about these things, in two, three, five years’ time, you are going to see your investments rendered without value.” Ricardo Meléndez-Ortiz, ICTSD
Since 2011 ICTSD has also convened – in partnership with the World Economic Forum – the E15Initiative as a dialogue process designed to come up with options for strengthening and improving the global trade and investment system for sustainable development outcomes. So far this has involved 16 partnering institutions, around 400 leading experts, hundreds of think pieces, and a series of concrete policy proposals that could be taken forward in various international contexts, whether multilateral or regional, as well as by private sector initiatives. GTR: Do you know of any financial institutions that are leading the way when it comes to backing sustainable trade? Meléndez-Ortiz: Among other things, business is engaged in the UN Sustainable Development Goals Fund (SDG-F), an international multi-donor and multi-agency development mechanism bringing together a range of actors to address the challenges set out by the goals. SDG-F has a Private Sector Advisory Group formed by business leaders of major companies from various industries worldwide. This group is helping to build a roadmap for public-private alliances that can scale up solutions to SDG challenges. I am a member of the research advisory group of the new Business and Sustainable Development Commission (BSDC) launched in January 2016 by Unilever’s CEO Paul Polman. The commission will make a case for why business leaders should seize sustainable development as a significant opportunity. The aim is to mobilise a growing number of business leaders to align their companies with social and environmental impact. The commissioners and advisory group members bring a wide array of expertise to the research and include representatives from the private and public sectors, as well as civil society.
November/December 2016 | 29
GTR Fintech Focus
Banksâ€™ innovation report
China Trade & Commodity Finance Conference 2016
India Trade & Export Finance Conference 2017
Malaysia Trade & Export Finance Conference 2017
November 22, 2016 Shanghai, China
February 22, 2017 Mumbai, India
March 14, 2017 Kuala Lumpur, Malaysia
For more information please contact Grant Naughton at email@example.com or visit www.gtreview.com
GTR FINTECH FOCUS
R3 makes blockchain code public
anking consortium R3CEV (R3) has announced that it will open-source its code for the blockchain platform it has developed together with over 70 global financial institutions, in hopes that it will be adopted as the industry standard. Code for the Corda platform will be contributed to the Hyperledger Project – a cross-industry project led by the non-profit Linux Foundation to advance blockchain technology. The Corda platform represents the biggest shared effort among the finance sector to work on the development of blockchain technology. R3 says that while it hopes its platform will become the industry standard, its intention is for other companies to build products on top of it. “We want other banks and
“The benefits of additional ledger platforms are minimal. There is room for only one or two enterprise platform technologies.” Zaki Manian, Skuchain
other parties to innovate with products that sit on top of the platform, but we don’t want everyone to create their own platform… because we’ll end up with lots of islands that can’t talk to each other,” chief engineer James Carlyle told Reuters. “If we have one platform with lots of products on top, then we get something that’s more like the internet, where we still get innovation but we can still communicate with each other.” The news comes on the back of numerous announcements by various smaller bank
consortiums and partnerships on their blockchain efforts, both in and outside trade finance, over the past year. “Blindly investing millions of dollars in small, disparate technology projects is not appropriate for banks at a time when budgets are stretched,” adds Carlyle. “The risk of backing the wrong horse could far outweigh the potential gains. Given that the power of this technology lies in its network effect, the consortium model is the ideal method to get it off the drawing board and into the wholesale financial markets.”
Commenting on what this means to other platform developers, Zaki Manian, cofounder at blockchain-based supply chain finance company, kuchain, tells GTR: “I think the benefits of additional ledger platforms are minimal. I suspect there is room for only one or two enterprise platform technologies. I expect that innovation will transition from new greenfield platforms to innovation on top of the platforms that successfully build an ecosystem. “I don’t think enterprises will see much value from running a dozen different technology stacks. At the same time, extraordinary work has been done in many of the proprietary platforms and I think their leadership will have to either decide to embrace and extend nonproprietary platforms, or bet on their failure.”
Synechron launches cloud-based blockchain solution
usiness consultancy Synechron has launched a series of cloud-based blockchain applications to help banks and companies get fast access to the technology. The so-called “accelerators” include applications for global payments, trade finance, smart margin calls, insurance claims processing, KYC
and mortgage financing and processing, and use existing platforms such as Ethereum, Hyperledger, Eris and Ripple. By being cloud-based and pretty much ready-made, the applications could save, smaller banks in particular, the time and energy needed to create their own blockchain infrastructure. Synechron’s capital markets
managing director, Sandeep Kumar, explains to GTR: “Synechron’s blockchain accelerators were designed to ‘accelerate’ financial institutions’ time to market for blockchain projects by giving them working, modular code to build on in a sandbox environment. “This helps large, global financial institutions working
on a number of blockchain projects to quickly stand up a second, third or fourth modular blockchain project to drive forward innovation.” The accelerators will also help tier two banks and intermediaries to futureproof their business models and help them to remain competitive, Kumar tells GTR.
education, standardisation and adoption through a blockchain working group; and partnering with the World SME Forum to help SMEs engage successfully in international markets. Steven Beck, member of the World Trade Board and head of trade finance at the Asian Development Bank, explains:
“Many of the barriers to global trade and access to finance can be addressed with technology. The success of these initiatives and our ability to address impediments to trade through financial technology is largely based on our ability to easily, accurately and efficiently find, track and validate information.”
World Trade Board reveals digitisation focus
he World Trade Board, a group of trade experts formed at the World Trade Symposium in June to push a harmonised global trade agenda among policymakers and the private sector, has announced three areas of focus: digitisation, standardisation and SME finance. In a release published at the
start of Sibos in September, the board unveils three initiatives meant to drive the trade finance agenda: working with the Global Legal Entity Identifier Foundation (GLEIF) to drive greater adoption of its system, designed to unambiguously identify participants in financial transactions; pushing blockchain
November/December 2016 | 31
GTR FINTECH FOCUS
Landmark transaction merges blockchain, smart contracts and IoT
ommonwealth Bank of Australia (CBA), Wells Fargo and Brighann Cotton are conducting the world’s first interbank trade transaction combining blockchain technology, smart contracts and the internet of things (IoT). The transaction, which is taking place between Brighann Cotton US and Brighann Cotton Australia, and their respective banks Well Fargo and CBA, is taking a shipment of 88 bales of cotton from Texas in the US to Qingdao in China. It involves the paper-intensive letter of credit being executed through a digital smart contract stored on a private distributed ledger – using
Skuchain’s Brackets system. A smart contract is an agreement written in a computer code that allows the transaction to be automatically executed once the conditions
as a key innovation in the trade finance space. The use of IoT in the Brighann Cotton trade involves a GPS device that tracks the geographic location
“From a client perspective, the combination of the three really leads to an exciting, very simple and straightforward experience.” Michael Eidel, Commonwealth Bank of Australia
of the contract are met. This is where the IoT comes into play. The IoT refers to devices and sensors automatically communicating and sharing data, and which combined with smart contracts and blockchain technology is seen
of the goods in transit. Once the goods arrive at the final destination in Qingdao, in early November, the smart contract will automatically trigger the release of funds. Speaking to GTR, Michael Eidel, CBA’s executive
general manager of cashflow and transaction services, says: “We wanted to prove that the combination of blockchain, smart contract and the IoT works. From a client perspective, the combination of the three really leads to an exciting, very simple and straightforward experience.” Going forward, the bank will focus on how to expand the use of IoT and sensors on the ships – and it says the potential should not be underestimated. Data from these devices could especially be valuable to the insurance industry by improving the monitoring of the goods insured. As such, involving insurance companies in a transaction is the next milestone for CBA.
Banks in blockchain dash
arclays, Standard Chartered, Emirates NBD and ICICI, among others, have all made announcements about blockchain ventures in the race for distributed ledger technology innovation. In September, Barclays conducted the world’s first live trade transaction using blockchain technology. The transaction, covering the export of butter and cheese from dairy co-operative Ornua in Ireland to the Seychelles, involved the cryptographic signing of digital documents using a platform developed by Wave. According to Barclays, it took around four hours to create digital-only documents; send them to the bank’s back office in India for checking and screening; send all cryptographically-signed documents to Barclays Seychelles; and for the latter to issue the LC itself before
32 | Global Trade Review
transferring everything to the importer, food retailer the Seychelles Trading Company. On top of the time saving, Barclays identified that the
Consensus Ledger network “in seconds”. This is at least the fourth such pilot payment performed on the Ripple network, after
The technology reduced delay-related costs, optimised internal processes and reduced the risk of documentary fraud.
technology reduced delayrelated costs, optimised internal processes for banks; and reduced the risk of documentary fraud. Meanwhile Standard Chartered completed a pilot US$500 cross-border business payment on a distributed ledger. The bank and “a large correspondent bank”, whose name was not disclosed, exchanged payment messages and obligations to settle the payment over the Ripple
Canada’s ATB Financial Bank sent €666.67 to Germany’s ReiseBank in 20 seconds in June and National Australia Bank (NAB) transferred A$10 to Canada’s CIBC in 10 seconds later in the year. Cross-border funds transfers typically take up to two days to complete outside of the blockchain. Elsewhere, Emirates NBD and ICICI Bank partnered with a subsidiary of Indian tech giant Infosys on a pilot blockchain solution for trade
finance and remittances. The banks become the first in the UAE and India, respectively, to pilot blockchain-based network for these purposes. The scheme was successfully implemented along the UAEIndia remittance and trade corridors. The involved banks are now working towards a network consortium. Once the blockchain network is up and running, the banks expect to automate interbank processes using smart contracts, secure digital exchange of documents and real-time monitoring of positions through integrated dashboards. The pilot scheme saw trade finance purchase order and invoice financing processes executed on the blockchain network, which achieved a near real-time transfer of invoices and purchase orders transparently.
Banks’ innovation report
GTR FINTECH FOCUS
The awakening: banks open up to fintech After a reluctant start, the trade finance industry is beginning to open its eyes to the opportunities offered by fintech. Increasing numbers of institutions are announcing partnerships, consortiums, hackathons and accelerator programmes. Aleya Begum highlights some key initiatives.
he trade finance industry is often referred to as being old and traditional. On the one hand, that denotes established, experienced and quality institutions, but on the other hand it can also mean resistance to change. Despite a reluctant start, the sector now appears to be opening up to innovation. A wave of announcements have recently been made, with partnerships and collaborations declared and various “industry firsts” claimed. One clear distinction from the old way of doing things is a new-found willingness to work with external innovation. The days of legacy systems and silos of proprietary data are increasingly challenged by both regulators and disruptors, pushing organisations to adopt more collaborative and standardised approaches. “It’s almost like the perfect storm – you’ve got regulatory drivers that are pushing banks to better understand what their exposure to risk is and holding senior individuals personally accountable. But you can’t do that easily with legacy systems in silos. You need more agile globally systemic perspectives and this is leading to great disruption,”
34 | Global Trade Review
Bill Blythe, business development director at transaction processing software provider Gresham, tells GTR. Gresham started out six years ago, and as a slightly more mature start-up, the company has been around long enough to witness the change in attitude from banks.
“On the trade front, there are fascinating possibilities around IoT and combining it with blockchain technology.” Phil Gray, Standard Chartered
As an industry that is weighed down by paper, trade finance is often described as highly inefficient and open to risk and fraud. Replacing paper processes with digitalised operations has been the focus of the latest round of innovation. While e-documentation has been on the agenda for a while, the use of distributed ledger technology (DLT), more famously known as blockchain, has captured the limelight over the last year. “There is a huge opportunity [for
innovation] within trade finance and a lot of it is around shipping [documentation],” says Lawrence Wintermeyer, CEO of fintech advocate group Innovate Finance. “Ultimately, if you can get all counterparties onto a distributed ledger, you digitise the liquidity and the finance that’s embedded in the transaction.” More recently, some in the industry have also publicised exploratory work on how the internet of things (IoT) can be adopted in the sector – namely how the use of sensors and trackers that communicate data on the physical location and conditions of goods and commodities can be deployed along the supply chain – offering more transparency and thus potentially reducing the risk and fraud. “On the trade front, there are fascinating possibilities around IoT and combining it with blockchain technology,” says the head of Standard Chartered’s eXellerator lab, Phil Gray. “With 28 billion devices forecast to be connected by 2020 this is an area we have started to explore and ask: ‘what does this mean for us?’” he says. GTR takes a look at some key bank consortiums and accelerator programmes driving digitisation forward.
Banks’ innovation report
GTR FINTECH FOCUS
Key consortiums R3 ECV
3 ECV (R3) was originally a consortium of 15 financial institutions that was formed in September 2015 to deliver DLT to the finance sector. Today, in what represents the biggest collaborative effort in the industry, it consists of over 50 member banks and financial organisations. The consortium believes that “DLT has the potential to change financial services as profoundly as the internet changed media and entertainment”. It has offices in New York and London. R3 has been developing the Corda platform, which it hopes will become the industry standard. After first showcasing it publicly in April this year, the consortium announced in October that that it would make coding for the platform open-source. “We want other banks and other parties
to innovate with products that sit on top of the platform, but we don’t want everyone to create their own platform... because we’ll end up with lots of islands that can’t talk to each other,” says chief engineer, James Carlyle, addressing the elephant in the room, around the otherwise welcomed developments. “Given that the power of this technology lies in its network effect, the consortium model is the ideal method to get it off the drawing board and into the wholesale financial markets.” In August, R3 announced that it successfully completed two prototypes that demonstrate how DLT can be used in trade finance. Over 15 banks were involved in designing and utilising self-executing transaction agreements, known as smart contracts, on Corda, to process accounts
“We want other banks to innovate products for the platform, we don’t want everyone to create their own platform.” James Carlyle, R3
receivable purchase transactions and LC transactions. R3 estimates the technology has the scope to reduce the operational and compliance costs of paper-based trade financing by 10 to 15% and provide a platform for banks to grow revenues by as much as 15%.
BofAML, HSBC and IDA Singapore
espite being members of R3, HSBC and Bank of America Merrill Lynch (BoAML) have separately teamed up with Infocomm Development Authority of Singapore (IDA) to investigate how blockchain can simplify the LC process. The Asia-based consortium announced in August that it had developed a new prototype
that proved, in theory, that the LC could be brought onto a private distributed ledger. It detailed how the trade deal can be executed automatically through a series of digital smart contracts. Parties involved in the transaction can also visualise data in real time. The consortium says its next steps involve further testing of the concept’s commercial
application with selected partners, including corporates and shippers. “Our challenge is to take this from concept to commercial use; making it quicker and easier for businesses to connect with new suppliers and customers at home and abroad,” says Vivek Ramachandran, global head of product for HSBC’s trade finance business.
Standard Chartered, DBS and IDA
tandard Chartered, DBS Bank and IDA teamed up to develop a proof of concept (PoC) for a blockchain-based invoice trading platform in December last year. It was the first application of blockchain technology to the trade finance space developed by banking institutions. The project uses Ripple’s distributed ledger technology to provide a platform for
tracking invoices, backing loans to suppliers and reducing risk of invoice duplication while retaining client confidentiality. The platform allows banks to convert invoices into digital assets on a distributed ledger. The initiative is envisioned as an open ecosystem where neutral third parties can participate and verify the authenticity of the trade documents being financed.
Standard Chartered’s global head of digitisation and client access for transaction banking, Gautam Jain, tells GTR: “We will be concentrating on extending the views of this initiative to other organisations so it will become a community effort. We look forward to working with more collaborators as we widen the project scope and are very optimistic on quick commercialisation.”
of credit between the buyer, seller and their respective banks, but it also introduced the use of a tracking feature that confirmed the geographical location of goods – allowing all parties to see in real time when the goods were shipped, follow them in transit and eventually see when they arrive at the location, with the need for fewer intermediaries. CBA general manager of cashflow and transaction services, Michael Eidel, tells GTR
that in the next phase of development the partners are looking to work with insurance companies, as the project will work on developing tracking capabilities. For example, the use of temperature or humidity sensors will allow more transparent monitoring of the likely quality and condition of goods on arrival. Furthermore, it will be easier to identify when any deviations from the terms of the contract occur and liable parties.
CBA and Wells Fargo
n October, Commonwealth Bank of Australia (CBA) and Wells Fargo announced they had piloted a trade transaction combining blockchain, smart contracts and IoT. The transaction saw cotton shipped from the US to China through the use of Skuchain’s distributed ledger platform. The trade not only involved an open account transaction that mirrored a letter
November/December 2016 | 35
Banks’ innovation report
GTR FINTECH FOCUS
Other key consortiums to watch Russian consortium
n July, a group of Russian banks announced a private sector consortium focused on blockchain applications. The consortium includes B&N Bank, which focuses on corporate banking,
as well as QIWI, Khanty-Mansiysk Otkritie Bank, Tinkoff Bank, MDM Bank and Accenture. The launch came just months after QIWI expressed its hopes to create the “Russian R3 ECV”.
The consortium, which represents the first such collaboration in the commoditiesrich nation, is working jointly with domestic regulators and policymakers.
members include capital markets technology, trading platforms and banking. Specific plans are reported to include the development of
a prototype for a securities trade platform and exploration of services for offering credit, digital asset registry and invoice management.
n April, over 30 financial and technology firms formed the Financial Blockchain Shenzhen Consortium. Areas of focus for the
Accelerators Rise – Barclays accelerator programme
he Barclays accelerator programme is a 13-week programme in partnership with Techstars. Barclays does not take any equity from participating companies, but Techstars takes a 6% share. The programme, which was initially launched in London, is now being run in New York, Cape Town, Tel Aviv and Mumbai. It provides access to Barclays’ network and knowledge base as well as mentorship and insights from others in the start-up and fintech space. First launched in 2013, the programme is in the process of selecting its fourth cohort of start-ups. In this round, Barclays says it will seek out companies that can help solve strategic priorities in areas including trade finance, information security and payments. In the trade finance space, two interesting companies that have already come out of the accelerator thus far are Wave and Tallysticks. Wave connects all stages of the supply
chain to a decentralised network to allow a direct exchange of documents. The application, which is targeted at SMEs, manages ownership of documents on the blockchwain, aiming to replace traditional bill of lading documents used by trading partners and “eliminate disputes, forgeries and unnecessary risks”. Barclays announced in September that it had conducted a live trade transaction using blockchain technology on the Wave platform. It took less than four hours to create digital-only documents; send them to the bank’s back office in India for checking and screening; send all cryptographically-signed documents to the recipient bank; and for the latter to issue the LC before transferring everything to the importer. Tallysticks uses blockchain technology to enable businesses to automate invoicing and invoice financing processes in order to make it “easier, cheaper, faster and more
transparent”. Speaking to GTR earlier this year, the company emphasised that in addition to streamlining and automating processes it is also focused on making
successfully raised around US$200mn. In December 2014, Citi Ventures partnered with renowned US accelerator Plug and Play to expand its offering to the US, Germany, Singapore, Brazil and Spain. The bank has also launched Citi Mobile Challenge, a virtual accelerator programme that combines a virtual hackathon with an incubator and is focused on the Asia Pacific region. Emea head of trade finance at Citi, Sameer Sehgal, explains to GTR that Citi’s
approach is a business-wide one: “We have a growth board that meets on a regular basis and we invite external participants to come and talk to us about subjects as diverse as data protection, compliance and trade solutions. Ideas are then shortlisted and entered into the innovation lab. “We then try to build on the idea, develop it to take it mainstream [within the bank]. Every idea has a designated owner whose responsibility it is to deliver or kill if there is no clear upside.”
Barclays conducted a live trade transaction using blockchain technology on the Wave platform.
invoice financing more accessible to companies and sectors previously deemed too risky. The company is working with a number of lenders to create a marketplace where any financier can lend against individual invoices – opening up the market to underserved sectors.
Citi accelerator programme
iti opened its doors to start-ups in Tel Aviv in 2013. The four-month accelerator programme, which has two rounds every year, is now in its fifth wave. The accelerator is part of Citi Ventures, which also includes numerous innovation labs and partnerships across the globe. The four-month programme offers a workplace, “tailored” mentorship and access to Citi’s networks. Citi does not promise to invest nor must start-ups give Citi equity in order to participate. To date, 53 companies have graduated from the programme, and
36 | Global Trade Review
Banks’ innovation report
GTR FINTECH FOCUS
Commerzbank’s main incubator
n Germany, Main Incubator has been running in partnership with Commerzbank since 2013. Different focus themes are picked by the incubator and entrepreneurs are then invited to apply with ideas. The six-month programme is run out of Frankfurt and offers start-ups access to the bank’s
corporate clients, as well as connecting them to a network of experts in the sector. The first five months are spent building the product with the support of venture capital funding, office space and expert know-how before an investment committee reviews and decides on further support.
In June, the incubator announced the launch of peer-to-peer funding platform, Main Funders. The platform helps clients of Commerzbank’s Mittelstandsbank business division, which caters for SMEs, to present investment projects to potential investors and secure financing.
Among its first round of participants is trade finance-focused start-up Gatechain, whose mission is to “redefine trade finance with blockchain”. The founders of the company, who come from a shipping and logistics background, tell GTR: “We’ve been suffering personally from this paper and manual handling for decades from our experience in the logistics space. We hear the suffering and want to remove this pain.” Gatechain is currently working on a minimum viable product (a development technique in which a new product is developed with sufficient features to satisfy early adopters) to build end-to-end secure
and trusted document flow between multiple trade partners. It is working with various corporates that it got access to through the accelerator programme. The company says what differentiates it from other players working on similar digitisation processes is that its platform will be open to different back-end and storage solutions and won’t “lock in” users. “The technology stack is going to change multiple times over the next couple of years,” explains co-founder Wassilios Lytras. “[By not locking them into one solution] we provide our customers the security that their investment in the adoption is secure.”
Other accelerators to watch UBS and Credit Suisse
witzerland’s two biggest banks UBS and Credit Suisse announced in March that they are launching an accelerator programme in partnership with Swiss Com, Swiss Life and Ernst and Young. The programme started in mid-2016 with blockchain – namely DLT and smart contracts – as one of three focus areas. The programme, which will run as part of the finance segment of Kickstart Accelerator, will see successful applicants receive financial assistance for three months, a workplace in Zurich, mentoring and introductions to investors. Companies are not required to give equity stakes to participate.
Standard Chartered and Supercharger
tandard Chartered has invited companies to apply for its second round of cohorts for the Supercharger accelerator programme, of which it is the main sponsor, in Hong Kong. Neither Standard Chartered nor Supercharger take equity stakes from participants. The 12-week programme provides access to market entry resources, mentors, technology advice from industry experts and joint venture opportunities. The accelerator programme works closely with the bank’s eXellerator lab which was launched in Singapore in March this year. Phil Gray, who runs the lab and is actively involved in the accelerator, says the first
cohort was a learning curve for the bank. “Last year was a great learning opportunity for us. We played a more passive role but we have built a better understanding
and this time we will have a far more engaged and focused approach,” he says. “We have had senior staff present during the roadshows and strengthened our commitment by making sure the right level of support and access to them is available throughout the programme. We will also be leveraging our cohorts from the bank’s Hong Kong-based international graduates programme to work with the start-ups, giving our next generation of bankers exposure to innovative start-ups.” Two of the focus areas for the selection panel this year will be supply chain and trade finance, as well as DLT.
among which a central authority, and could establish the supply of the asset and permissions to access and use the ledger. The bank noted that the technology is still relatively immature, and that it was important to gain further experience in the area. In particular, it highlighted that it was interested in exploring scalability, security, privacy,
interoperability and sustainability. While its accelerator programme, which is currently reviewing the first round of applications, will seek innovation for unique central bank issues, the Bank of England’s involvement could result in a more favourable regulatory environment for parties involved in distributed ledger technology.
“We have built a better understanding: this time we will have a more engaged and focused approach.” Phil Gray, Standard Chartered
Bank of England
n June, the Bank of England announced that it will launch its own accelerator programme. It also announced that it had completed a DLT proof of concept exercise with PwC to better understand the technology. The exercise involved the fictional transfer of a financial asset on the Ethereum protocol, which included several participants,
November/December 2016 | 37
Kjaruharo temples, India
Industry leaders roundtable
Collateral Control Services and Supervision for Banks, Traders and Suppliers. ACE Global Depository Group mitigates operational risks involved within trade finance transactions.
. ACE Global is a key partner for more than 170 financial institutions working with some of the largest exporters, importers and processors countries. . inACE46 Global has a comprehensive Professional Indemnity and Fraud policy with $200 Million per occurence covering its asset obligations to clients. . management ACE Global provides collateral control services backed by its bespoke IT system; Enhanced Commodity, Capacity, Credit, Collateral, Control (E5C).
Please visit www.aceglobaldepository.com for comprehensive details regarding our tailor-made services.
ACE Global Depository DMCC, Dubai t: +971 4 4539758,59 e: firstname.lastname@example.org
ACE Global Zambia Limited, t: +260 211 291768/ +260 211 294711 e: info@ aceglobaldepository.com
ACE Global Uganda Limited t: +256 414 233 973 / +256 414 348 425 e: email@example.com
ACE Global Depository (India) PVT LTD t: +91 222 837 9495 e: info@ aceglobaldepository.com
ACE â€“ Audit Control and Expertise C.I t: +225 20 25 48 50 e: firstname.lastname@example.org
ACE Global Turkey Gozetim Hizmetleri A.S. t: +90 216 474 17 55 e: info@ aceglobaldepository.com
1MDB claims another scalp as Singapore’s money laundering crackdown continues
alcon Bank of Switzerland has had its Singapore banking licence removed for money laundering activity connected to the 1MDB scandal. The Monetary Authority of Singapore (MAS) ordered Falcon Bank, a private bank, to close its Singaporean operations over 14 breaches of the city state’s money laundering prevention law. It has also been fined just over US$3mn. 1MDB is Malaysia’s state-owned development fund. The country’s Prime Minister Najib Tun Razak is accused of channelling around US$700mn from the fund to his own personal bank account. Many topranking officials have been dragged into the scandal, with regulators around the world launching investigations and seizing assets that are potentially related to it. Falcon becomes the second bank to have its Singaporean license revoked
as a result of 1MDB, after BSI Bank in May. MAS found breaches during inspections in both 2013 and 2015, with Falcon Bank failing to strengthen its AML controls, despite being ordered to do so. It has withdrawn Falcon’s merchant banking licence for “persistent and severe lack of understanding of MAS’ AML requirements and expectations”. The authority also imposed financial penalties on DBS and UBS, two commercial banks, for breaches of antimoney laundering (AML) requirements. DBS was fined US$1mn for 10 breaches, with UBS fined US$1.3mn for 13 breaches of AML law. These banks were found to have lapses in controls, including “deficiencies in the onboarding of new accounts, weaknesses in corroborating the source of funds, inadequate scrutiny of customers’ transactions and activities, and failure
to file timely suspicious transaction reports”. These were connected to individuals within the banks, rather than faults in the compliance systems. In a statement, the authority said: “MAS’ inspections did not find pervasive control weaknesses within these banks.” Nonetheless, the events provide further warnings to trade banks operating in Singapore, which has been leading the charge against money laundering in the region. MAS confirms that Standard Chartered is also under assessment and that it will make an announcement on its findings soon. AML expert Sean Norris, Asia Pacific director at risk management software company Accuity, claims that the penalties will be an embarrassment to DBS and UBS, both of which are heavily engaged in stopping breaches of AML procedures. He tells GTR: “I know these banks. Falcon, BSI:
“DBS and UBS will be motivated and embarrassed by what’s happened.” Sean Norris, Accuity
deliberate action and the right judgement has been passed, an immediate revoking of their licence. But with DBS and UBS, they are doing their damnedest to try and deal with AML, sanctions and bad behaviour. The attitude of people I work with in these banks is not to circumvent these. “I can tell you right now that DBS and UBS will be motivated and embarrassed by what’s happened because they’re working night and day to try and stop all of this. In a world of ever-changing compliance and ever-changing cleverness by the bad guys to push money through, it’s a tough gig.”
Asia invoice financing fund to serve areas “untouched” by banks
tenn Financial, an invoice financing firm, has launched a US$300mn fund to tap the manufacturing hubs of emerging Asia that are “pretty much untouched by banks”. The UK-based company, with an office in Singapore, has combined its own capital with that of alternative asset manager Crayhill Capital Management to launch a platform for acquiring 120-day trade receivables from SMEs in China and Southeast Asia. The launch comes at a time when many traditional financial institutions are vacating the space as they derisk their balance sheets and
focus their resources on core sectors and geographies. Stenn’s CEO Walter Colebatch tells GTR that despite many banks announcing supply chain financing programmes in Asia, they are encountering little competition on the ground. “The feedback we are getting from our clients is that dealing with banks is time-consuming, inefficient, inflexible and bureaucratic for them. We only expect that to increase, and the differential between invoice financing firms like Stenn and the banks to increase,” he says. “Secondly, while banks talk a good shop when they launch these programmes, we find
the real-world marketplace on the ground in developing manufacturing nations is pretty much untouched by those banks. So, in reality, we are not bumping into them on the ground,” he adds. The view reinforces that held by many alternative financiers in Asia. Speaking to GTR in Hong Kong, Rajah Chaudhry, the CEO of online working capital platform Paycelerate, explains that large banks find it difficult to cater for the granularity of Asian supply chains. Their programmes are often not scalable and destined only to work for large multinationals and their long-term, steady suppliers
throughout the region. This leaves a gaping hole in the market for smaller companies requiring access to working capital. Colebatch adds: “The cashflow shortages and withdrawal of liquidity in the Asian manufacturing countries of the past 12 months or so has seen interest in our services grow significantly. It’s an excellent opportunity for us because while that is happening in Asia, on the other side of the world, importers and retailers are reacting by demanding longer open-account terms or cutting their LC issuances in order to preserve their own working capital.”
November/December 2016 | 39
AIIB opens Myanmar book amid falling FDI
he Asian Infrastructure Investment Bank (AIIB) has issued its first loan in Myanmar. It will lend US$20mn to the Myingyan gas-fired power plant, which will also receive US$58mn from the International Finance Corporation (IFC) and potentially US$42.2mn from the Asian Development Bank (ADB). The 230MW plant will be constructed by Singapore’s Sembcorp Industries, who won what is considered to be the first wholly international tendering process in the country’s sector. Development banks are circling Myanmar, hoping to bolster their investments in a country which has lost much of its sheen for commercial investors over the past 12 months.
A long electoral period which eventually saw the National League for Democracy (NLD) sweep to power earlier this year, coincided with a sharp drop in foreign direct investment (FDI) into Myanmar in 2015. FDI fell from a peak of US$8bn in 2014 to US$3.9bn last year. The NLD, led by Aung San Suu Kyi, is expected to announce a comprehensive economic policy in the coming months, which could serve to assuage investors’ fears, particularly given the US’ surprise decision to lift economic and trade sanctions on Myanmar in September. While things are uncertain, it could well be down to caution rather than longterm reluctance to trade in or with Myanmar, one of Asia’s frontier markets. “I’m still quite positive about Myanmar,” Khaing
Zar Aung, head of insurer Willis’ representative office in Yangon tells GTR. She explains: “I know FDI is down by 85% and that affects our business obviously. With the new government, we thought investment would be rushing in and everyone would be keen to do business in Myanmar. But in reality, because of a lot of changes in regulation, a lot of investors have held back, a lot of projects have been pushed back until industrial policy has been refocused.” Aung adds that many companies appear to be awaiting a codification of economic policy before moving. Insurance premiums are down, she says, but that has meant more people are taking them out. For Willis, volume is up, even if the average premium value is down. Much planned investment
“A lot of investors have held back, a lot of projects have been pushed back until industrial policy has been refocused.” Khaing Zar Aung, Willis
in the construction sector has been put on ice after the government suspended all planned projects with more than nine storeys in Yangon, the largest city and former capital, including those that are in construction. In an explanatory note, the government cites issues such as lack of fire-safety systems, lack of parking space, violations of road-to-building rules and breaches of planning permission approval on height.
Cofco Agri closes bumper syndicate
ofco Agri has closed a US$2.6bn syndicated credit facility with a host of international banks. The Chinese commodity house, which was formed after Cofco completed the purchase of the agricultural unit of troubled Noble Group earlier this year
for US$750mn, launched the syndication in July in Singapore. The deal was 100% oversubscribed – an indication of the lack of viable deals banks are seeing in the sector. Cofco settled on US$2.6bn, having scaled back lenders’ commitments.
Senior bookrunning mandated lead arrangers (MLAs) were: ABN Amro, Agricultural Bank of China, Bank of China, China Construction Bank, China Development Bank, China Merchants Bank and ICBC. Bookrunning MLAs were: Bank of America
Merrill Lynch, BNP Paribas, Commonwealth Bank of Australia, DBS, First Gulf Bank, National Bank of Abu Dhabi, Rabobank, Société Générale, SMBC, United Overseas Bank and Westpac. MLAs were: BBVA, Crédit Agricole and National Australia Bank.
Fangyuan Group seals large structured commodity loan
n international syndicate of banks has arranged a US$385mn structured copper pre-delivery loan for Fangyuan Group, the fourth-largest copper producer in China. This was the first offshore syndication raised by the group and it follows a US$145mn facility raised in 2015. The lead arrangers were Deutsche Bank and ING and
40 | Global Trade Review
while the terms of the finance are confidential, Frank Wu, the regional head of structured commodity trade finance at Deutsche, says that they “have all the classic elements of a structured commodity trade finance (SCTF) loan, such as ring-fenced self-liquidating cashflow from the underlying commodity offtake”. He continues: “The pricing
is in line with what the market would expect for this kind of counterparty and deal structure. The oversubscription shows that there is good market appetite for good SCTF deals.” This market appetite has returned with the upturn in commodity prices through Q2, Wu tells GTR. The deal was 54% oversubscribed, with Wu also alluding to but not providing
details of another SCTF deal closed recently that was 50% oversubscribed. There were 11 banks involved in the syndication, and GTR can reveal them to be: Deutsche Bank, ING, Société Générale, ABN Amro, China CITIC Bank, First Gulf Bank, Korea Development Bank, Nanyang Commercial Bank, SMBC, ICICI and Banca Monte dei Paschi di Siena.
Chinese overseas lending slowed last quarter
hina’s outbound investments fell by 35% in the third quarter of 2016, with a 90% decline in direct government to government (G2G) loans. Just 12 governmentrelated loans (including those by policy bank and China’s multilateral agencies) were signed in Q3, worth US$14.7bn. This represents a 40% decline in overall statebacked lending volume and value compared to Q2. Overseas lending last quarter consisted of nine policy bank loans, one government loan, one New Development Bank (NDB) loan and just one loan from the Asian Infrastructure Investment Bank (AIIB). Analysts from Grisons Peak, a merchant bank that compiled the data, attribute the slump in part to the G20 Summit which took place in Hangzhou in September. During this, China’s President
Xi Jinping met with more than 30 national and organisational leaders, entering into 33 multi-deal agreements. These will expect to filter through in the next few months and should boost overseas lending in the quarter to come. “In this quarter, China entered 33 multi-deal G2G agreements, up 83% from Q2 [18 agreements] and an all-time high in our eight years analysing this component,” analysts write, adding that significant amounts can expect to be disbursed from Q4 as a result. The decline, however, runs counter to an expansion in domestic lending in China.
China’s banks issued new loans worth Rmb1.22tn (about US$181bn) in September, an increase of 29%. Grisons Peak data does show that seven of 12 government-related loans in Q3 were to countries involved in China’s One Belt One Road (OBOR) initiative, mainly in Africa and Asia. OBOR was first presented in 2013 and aims to develop two corridors linking China to the world. There are 65 countries involved and the huge base of projects is designed to spur US$2.5tn of cross-border trade every year. This year, it’s estimated that Chinese companies have
Just 12 governmentrelated loans were signed in Q3. This represents a 40% decline in overall state-backed lending.
signed 4,000 engineering contracts connected to OBOR worth US$70bn. However, HSBC has warned that western companies are failing to take advantage of the opportunities that OBOR presents to them, despite the fact that many are already versed in using the Chinese currency. According to a survey the bank conducted of 1,600 decision-makers in 14 countries, 24% are using renminbi (Rmb), but just 41% are aware of the opportunities OBOR presents.
Rmb notes Pace of global Rmb payments growth remains slow
he value of global Renminbi (Rmb) payments increased by almost 5% between July and August – but this significantly trails the rise in payments across all currencies. Payments across all currencies increased by 7.21% over the period, compared to 4.81% for Rmb payments, as the volatility and slowdown in China’s economy affects the currency’s usage overseas. The Rmb remains the fifth most-used world payment currency, ahead of the Canadian dollar, but it accounts for just 1.86% of
42 | Global Trade Review
global trade settlements. Having grown significantly in the run-up to 2015, it seems to have plateaued over the past year and shows no signs of overtaking the Japanese yen, which is in fourth place on 3.37%. Since September 30, the Rmb has been included in the IMF’s special drawing rights (SDR) basket of reserve currencies. Announced more than one year ago, this led many to believe the pace of internationalisation would accelerate. In addition to this, a memorandum signed between
Swift and China’s new Cross Border Inter-Bank Payments System (CIPS – described by some as the “Chinese Swift”) in March was expected to speed things along. Progress has been slower than expected. Anecdotal evidence from the market suggests that few are using the Rmb as a currency for trade finance outside of Mainland China. Most of the trade is being done by Chinese institutions. Experts claim that the lack of real connectivity is hindering progress and that the integration of settlement
Having grown significantly in the run-up to 2015, the Rmb seems to have plateaued over the past year and shows no signs of overtaking the Japanese yen.
infrastructure is essential if the Rmb is to expand more rapidly.
Hanjin Shippingâ€™s collapse was a long time coming, and may not be the last we see in a sector thatâ€™s in a mess. Finbarr Bermingham tracks the decline of Hanjin, and finds an industry that has been complicit in its own downfall.
44 | Global Trade Review
n August 30, Korean company Hanjin Shipping underwent the biggest collapse the sector has ever seen, as it became unable to repay its US$5.5bn debts. Creditors, led by the Korean Development Bank (KDB), called time on a company that was sunk by its bloated container shipping business. When the sun rose on September 1, it found 400,000 containers on 85 Hanjin ships, carrying US$14bn-worth of goods, marooned at sea. Port operators, wary of shipping companies being unable to pay docking fees, container storage and unloading bills in the tumultuous decade since the financial crisis, refused Hanjin’s ships entry to many ports around the world. The company’s name, overnight, became toxic. Some of the 8,000-plus cargo owners scrambled their own boats to unload goods from the stranded ships. Samsung Electronics alone had US$38mn-worth of electrical goods bobbing around the sea, most of them bound for the US holiday season. Hundreds of sailors spent weeks stranded at sea.
Checking into rehab The collapse of Hanjin Shipping had been in the works for a long time. James Gellert, the CEO of Rapid Ratings, tells GTR that his company had flagged Hanjin and many of its peers as “very high risk for a few years”. But even if it wasn’t a huge surprise to ratings companies, it caught much of the industry off guard. Gellert says: “The most directly impacted were companies that had goods on vessels: that’s been a significant disruption to supply chains. Secondarily there’s a spill-on effect: when one supply chain is disrupted it means someone else’s supply chain is disrupted, so you have the trickle effect.” Before going bust, Hanjin handled 3.2% of global container cargo and 7.8% of the trans-Pacific volume for the US. This “trickle effect” is being felt most keenly in America, where West Coast imports took a hammering in September: cargo entering Long Beach, the US’ second-largest container port, was down 15% year on year, with Oakland losing 4.2%. Hanjin’s collapse caused immediate chaos in the logistics business. Ordinarily, when a container ship docks at a port, it unloads its cargo and leaves with the containers on board – either empty or reloaded with outbound goods. However, since Hanjin wasn’t fulfilling any further orders, it dropped 15,000 containers at various ports around Los Angeles, where they were left to gather dust in warehouses, yards and carparks around California. Thousands of abandoned Hanjin containers are still attached to chassis, the wheeled trailer used for moving containers. As GTR went to press, they had taken 13% of all the chassis in California off the market, causing panic ahead of the busiest merchandising season of the year. Comically, the Hanjin Miami was stranded offshore in New York for days, because nobody was sure how it would return to sea without the weight of reloaded
containers. Without the containers, the Miami would have sailed too high in the water to fit under the Bayonne Bridge. A compromise was eventually reached, whereby the ship was temporarily loaded with enough ballast to make it under the bridge. The financial impact is likely to feed through in coming months, but judging by the list of creditors Hanjin published on its website in October, it will be far-flung and deep. The list consisted mostly of industry peers, such as container owners, bunkering companies, fuel providers, terminal operators and freight forwarders. There are more than 3,000 creditors (these debts are not included in the US$5.5bn default figure), all unsecured by collateral, meaning that their owners will have to take a haircut on the repayment – if they get anything at all.
The financial impact is likely to feed through in coming months, but judging by the list of creditors Hanjin published on its website in October, it will be far-flung and deep. This is the reality facing most companies exposed to Hanjin, particularly since a court in Seoul granted the company rehabilitation protection in September. Essentially, this means that the company’s assets cannot be seized to repay debts. A receiver will try to sell assets and manage Hanjin’s decline in an orderly fashion. “In simple terms it gives the receiver breathing space to organise a gathering of debts and termination of contracts to see if there’s a company that can be saved at the end, or whether it is so indebted that the best thing for it is to put it into liquidation,” explains Beth Bradley, legal director at law firm Clyde & Co, who specialises in Korean shipping. Hanjin then sought to have those proceedings recognised around the world, to stop creditors arresting Hanjin vessels when they docked. In the weeks after the collapse, the Hanjin California was arrested by Glencore in Sydney, while the Hanjin Rome was detained in Singapore. At the time of writing, the protection had been recognised in the UK, US, Japan, Singapore and Germany. Others are pending in Belgium, Holland, Spain and Italy with possible proceedings to follow in Australia. Some jurisdictions, including China, won’t recognise foreign bankruptcy proceedings, meaning any ships that dock there are ripe for the picking. But for a few months at least, Hanjin ships are safe in many of the world’s trading hubs.
Past the point of rescue South Korea is the world’s third-largest exporter of container cargo, behind China and the US. Shipping and shipbuilding are synonymous with Korea Inc.,
November/December 2016 | 45
Global GDP is growing more quickly than world trade, which is bad news for the shipping sector 20
3.4 3.2 2.8
1.1 1.1 1.1 0.8
-2 -3.0 -3
World trade volume growth (left)
World GDP growth (left)
Ratio of trade growth to GDP growth (right)
Source: WTO Secretariat for trade concesus estimates for GDP
providing huge levels of employment and prestige as the country blossomed into an exporting powerhouse. One of the most obvious questions to ask after the collapse, then, was: why did the Korean government allow the world’s ninth-largest container shipping company to fail?
“HMM is struggling: it has huge debt. But Korea can’t let go of both its container shipping companies. It’s a major exporting country.” Rahul Kapoor, Drewry Financial Services
Of the secured debt – the US$5.5bn Hanjin defaulted on – 20% is owned by international banks (a look through Hanjin’s records on the Company’s House website shows outstanding mortgage debt to banks such as BNP Paribas and Crédit Agricole, most likely for ship purchases). The remainder is owed to Korean banks, primarily the state-owned KDB, according to Rahul Kapoor, a maritime analyst at Drewry Financial Research Services. When the KDB and other Korean lenders announced that they would not be extending support for Hanjin, Hanjin’s debt-to-equity ratio was 850% and it had been ambling along unprofitably for a number of years, as had its domestic rival Hyundai Merchant Marine (HMM). The companies, between them, handle most of South Korea’s exports and employ tens of thousands
46 | Global Trade Review
of Korean people. But having had its fingers burnt by previous bailouts (last year, Daewoo Shipbuilding and Marine Engineering was handed a US$3.77bn rescue package by the KDB), Seoul officials were faced with a stark choice: continue to back two losing horses, or concentrate efforts on returning one to health. “HMM is struggling: it has huge debt. But Korea can’t let go of both its container shipping companies. It’s a major exporting country, they have Busan terminal, one of the biggest shipping terminals as well. They let Hanjin go, but it was give or take in that respect,” Kapoor tells GTR. Both Hanjin and HMM had been given a number of months to restructure their commercial contracts and sell off assets to reduce their debt burden, with the threat of losing any additional financing if they failed to comply. Hanjin failed, and the KDB pulled the plug. “I was in Seoul the week they sought rehabilitation protection and my impression there was of surprise that the KDB and the Korean government had allowed one of their jewel ship lines to go into rehabilitation measure, but the converse is that their debt position has been so high it’s difficult to justify using taxpayers’ money to fund them further,” says Bradley. The KDB realised that there was no point throwing good money after bad. Hanjin was operating in a market that was arguably a major downturn away from complete collapse. In the weeks after the bankruptcy, Hanjin’s chairman Cho Yang-ho told a parliamentary hearing in Seoul that his company “lost the game of shipping played among large shippers”. The implication is that without government support, any of the big shippers
could have failed. His point has merit: but to exempt Hanjin from blame in creating the conditions in which government backing is necessary would be glib. Container ships are described by the OECD as “the work-horses of the globalised economy”. They are intrinsically linked to trade, so when trade is booming, so is shipping. Throughout the 1990s and 2000s, the growth rate of global trade was double that of global GDP. Even as the financial crisis hollowed out the global economy, shipping’s salad days continued with the commodities boom, spurred primarily by the unprecedented growth of China’s industry and infrastructure.
“I was in Seoul the week they sought rehabilitation protection and my impression there was of surprise that the KDB and the Korean government had allowed one of their jewel ship lines to go into rehabilitation measure.” Beth Bradley, Clyde & Co
“Over 13 years in dry bulk cargo we went from the ships achieving the highest peak of over US$120,000 a day to US$6,000 today. The same happened with container ships,” says Rasmus Kilde, who worked as a ship charterer for British shipbroker Simpson Spence Young until it closed its Indonesian office this year. But the boom didn’t last forever: China’s economy has slowed and commodities markets have crashed. As trading and production habits change, shipping lines are getting shorter, while underlying economic conditions are arguably not much stronger than at the turn of the decade. Michael Lum, a political risk underwriter at insurance company Beazley, tells GTR: “The statistics suggests that for the second time since 1950, GDP growth has outstripped container traffic. One factor of low traffic
Rapid Ratings’ Financial Health Ratings (FHRs) for five global container shippers. Most companies that have failed have been rated at 40 or under. 100
is the shift in production and manufacturing patterns, where these activities are taking place closer to their markets – not to mention the current global aversion to bilateral, let alone international, free trade agreements. This is creating very tough operating conditions which ultimately benefit the fittest and nimblest.” Across the board, much of the post-financial crisis supercycle has been built on debt and defined by bad decision-making. Container shipping – bloated and over-leveraged – epitomises this largesse. The madness of the sector can be seen in the fact that as global trade growth is flat-lining, companies continue to bring more ships online. The world’s four largest container ships are due to set sail in 2017. Built by Samsung Heavy Industries for Mitsui OSK Lines, each will have a deck as large as four football fields and will stretch 1,300 feet along the ocean, holding more than 20,000 containers apiece. Consider that there are a million twenty-foot equivalent unit (TEU) slots already available on container ships around the world, and the industry’s extravagance is clear. Throughout the boom years, the top shipping companies built more and more, bigger and bigger, in an effort to reduce the cost of each container. In the last decade, the maximum container ship size has doubled. These actions have little root in economic reality.
Detached from reality
In 2017, the biggest container ship in the world, built by Samsung for Mitsui OSK, will set sail. It will have a deck as large as four football fields and hold over 20,000 TEU. There are currently 1 million free TEU slots on ships around the world.
0 COSCO Low risk
Very high risk
Source: RapidRatings. Hanjin & Others Comparison Report, October 12, 2016
A 2015 OECD report exploring the impact of megaships describes “the complete disconnect of ship size development from developments in the actual economy”. In a traditionally cyclical sector, where amplified periods of over and under-capacity are the norm, and which are reflected in fluctuating freight rates, the last few years have been abnormal. Huge orders were lodged amid economic stagnation and now, the levels of commerce needed to absorb this capacity simply does not exist. The OECD report presciently forecast “shipping lines building up overcapacity that will most likely be fatal to at least some of them”.
November/December 2016 | 47
Mining is another industry anchored to macroeconomic cycles, and there are clear parallels to draw between the two. Dotted along the Queensland coast, abandoned coalmines act as headstones for the freewheeling boom years in Australia. Many mine owners still pay rail and port operators fees for infrastructure access even though the mines are defunct. Rival mining giants are sharing assets in a bid to desperately cut costs: the folly of making big money investments without any consideration for what happens when the music stops. Speaking from his office in Jakarta, Kilde can see the similarities with the coal industry there. “It’s exactly the same. The shit hits the fan and investments are too high. People made good money on the coal industry in Indonesia five to seven years ago, but they thought prices were going to stay high. Now they’re not able to mine because their production costs are too high.” He adds: “If you twist that around to a ship, everybody went out and invested in new tonnage in the shipping industry to keep their costs down and make as much money as possible on the container. But they forgot to take ships out of the equation.” To compound matters, as shippers were bringing megaships online, they weren’t disposing of the ships they already had. Rather than selling them to scrapyards, they sold to other shippers. The excess capacity was not being taken out of the market, it was shuffled around. You’re left with the ridiculous overcapacity that plagues the market today. Removing Hanjin would make some difference, but 3% is – if you’ll excuse the pun – a drop in the ocean. There was an immediate spike in container rates after the collapse, but that was a product of opportunism rather than market forces. “There’s no reason why it [the spike] should be maintained,” Zvi Schreiber, the CEO of online freight marketplace Freightos, tells GTR. “The fundamental reason for low prices was significant overcapacity in
the industry: about a million free slots on ships, due to building too many ships and due to world trade not growing as fast as expected. 3% from Hanjin is a lot less than the overcapacity.” From what we know about the sector, we can assume that even as Hanjin sinks, its ships will sail again. As long as there’s a buck to be made, there will be a company willing to buy cut-price vessels from the KDB and other creditors and put them to work. If the bank recoups 40% of value, most experts would consider it a good deal. The world’s largest container shipping company Maersk Line has already been mooted as a potential buyer, while the bailed-out HMM may also acquire some of the fleet. Shipping is moving towards a new phase, one of “consolidation”. The benefit to the industry, however, will be limited.
“The fundamental reason for low prices was significant overcapacity in the industry: about a million free slots on ships due to building too many ships and due to world trade not growing as fast as expected. 3% from Hanjin is a lot less than the overcapacity.” Zvi Schreiber, Freightos
The Lehman of shipping “In general, we welcome consolidation – M&A as well as alliances. The container shipping industry is fragmented and consolidation will enable carriers to create economies of scale and to optimise networks,” Maersk Line’s Asia Pacific CEO Robbert Van Trooijen tells GTR in an email exchange. He echoes the views of his boss Soren Skou, the company CEO who said this year that “there are enough ships in the world”.
To be delivered p.a.
Growth rate (RH-axis)
-250 -500 2012A
Growth rate p.a.
The number of containers in the world is still growing, while demolition levels are falling. This will only lead to more overcapacity problems.
Source: BIMCO estimates on Clarkson’s raw data
48 | Global Trade Review
Rapid Ratings compared the financial health of five top shipping companies, finding a highly leveraged, low profit and inefficient industry. COSCO
Gross profit margin (%)
Sales to assets ratio
Return on assets (%)
Liquidity ratios Current ratio
Leverage ratios Debt to equity ratio
Operating profit to interest expense (x)
Total debt to total assets (%) Turnover ratios Inventory days
n/a: This data points either Not Available or Not Applicable Source: RapidRatings. Hanjin & Others Comparison Report, October 12, 2016
“In a handful of industries, we have seen seminal bankruptcies that change the way people feel about an industry from a comfort level. I believe that’s what is going to happen with shipping.” James Gellert, Rapid Ratings
Maersk Line is weaning itself off its megaship addiction, in favour of acquisition. But one carrier absorbing the ships of a defunct rival is not going to do anything to reduce the levels of overcapacity in the market. If the ship is owned by Hanjin or Maersk, it’s still the same ship. Consolidation, of carriers and ships, may allow companies to be more efficient and cut costs, but it will not magically produce more cargo for them to transport. Nor will it address some of the industry’s fundamental issues. Schreiber also warns that consolidation might add to the industry’s price-fixing problems. In September, South African authorities raided the offices of six shipping companies, including Moeller-Maersk and MSC, over allegations that they colluded to fix incremental cargo rates between Asia and South Africa. Rapid Ratings data, compiled for GTR, shows what a sorry state some of the most important companies are in. The data looks at five companies: COSCO, Evergreen, Hanjin, HMM and Moeller-Maersk, finding that the average gross profit margin is just 0.37%. Debt to assets averages 54.11%, while the return on
assets rate is -5.81%. Only Maersk is rated as being low risk, with the others either medium (COSCO), high (Evergreen) or very high (Hanjin and HMM). “What I see from the core health perspective, the longer-term efficiencies in the companies, I see weakness across the board,” Rapid Ratings CEO Gellert says. “From a 30,000-foot level, looking at the ratings of the group, they’d really better get their minds around it [overcapacity] as quickly as they can, because the long-term prospects for all of them are quite challenged.” There is the hope that Hanjin’s collapse may act as a reality check. In the aftermath, the CEO of Hong Kong-based container shipper Seaspan compared it to the collapse of Lehman Brothers. Gerry Wang said: “It’s a huge, huge nuclear bomb. It shakes up the supply chain, the cornerstone of globalisation.” In the sense that it shook people’s misconceptions of the market, Gellert agrees with the comparison. In commodities too, the bankruptcy of MF Global in 2011 shook the industry to the core and had long-term ramifications. As an established, erstwhile successful player with significant market share that went to the wall, taking with it a complex supply chain, the company bears many similarities to Hanjin. “In a handful of industries, we have seen seminal bankruptcies that change the way people feel about an industry from a comfort level. I believe that’s what is going to happen with shipping,” says Gellert. Size is not a proxy for risk management. As with banking and trading, no shipping company is too big to fail. We can be sure the effects of Hanjin’s collapse will permeate the industry for years to come.
November/December 2016 | 49
Industry leaders roundtable
Left to right: Ravi Manchanda, Jolyon Ellwood-Russell, Finbarr Bermingham, Shivkumar Seerapu, Sanjay Tandon, Albert Lim, Azim Walli
Asia industry leaders forum Over a September lunch in Singapore, GTR sat down with some key decision makers in Asia Pacific trade finance, to discuss the most debated topics in the region today.
GTR: Lending levels are down, yet more trade goes without financing. It is a paradoxical time. What would you describe as the one major trend that youâ€™ve noticed in the trade finance market over the past year?
At a time when regional lending has reached a three-year low, banks are faced with the task of bridging a huge trade finance gap. Simultaneously, they need to tackle the challenges and opportunities of fintech â€“ the buzzword dominating the industry.
Tandon: Some of the business that banks have built up over the past few years was built on arbitrage in my personal opinion, and that party has come to an end. So effectively, it was great business for everybody to capitalise on the opportunity, but now itâ€™s back to the core business that banks have always done, which is about being the working capital provider to their corporates.
50 | Global Trade Review
Industry leaders roundtable
Roundtable participants ●
Finbarr Bermingham, editor, GTR Asia (chair) Jolyon Ellwood-Russell, partner, Simmons & Simmons Albert Lim, head, credit and surety hub, Asia Pacific, Swiss Re Corporate Solutions Ravi Manchanda, chief executive, Singapore, Westpac Shivkumar Seerapu, regional head of trade finance, Asia Pacific, Deutsche Bank Sanjay Tandon, regional head of product and propositions, global trade and receivables finance, Asia Pacific, HSBC Azim Walli, assistant general manager and head of trade and supply chain products, Asia and Oceania, BTMU
Now the slowdown is hurting us, and it’s both a function of how volumes have dropped and how values have dropped. At least for the early part of the year, if you look at the commodities that moved, there was no drop in terms of actual physical tonnage moving across. Now, that has started hurting and as long as the volume is dropping, and prices are out of our control because they are a function of the market at the end of the day. I still feel that it’s not all doom and gloom. I believe that it’s cyclical. Asia has had a great decade in terms of trade finance. It will come back. Yes, there will be changes: technology, digitalisation and governments trying to drive change, but that is not going to be immediate, and it’s not going to be the panacea for everything. That will help us manage risks, monitor what goes through our counter. The biggest challenge I see is that now it’s trade’s turn from a regulatory and compliance perspective. The regulatory overhang is immense now. It used to be all about the payments and cash management business, which went through a lot of automation and a lot of data analytics which helped them manage anti-money laundering (AML) risk. Now it’s trade’s turn, and I think we need to, collectively as an industry, figure out how to make the business efficient. If you are in the flow business, and managing a lot of volumes, that means a huge amount of investment in infrastructure and cost to really give the standard service to your contract. Manchanda: The compliance bit
is killing a lot of banks; the cost of compliance has gone up – I believe from what I read that it’s doubled over the last two years. As a result, compliance colleagues are actually more in demand than frontline officers. In some ways I think the pendulum has swung to the other side, so these are the challenges: currency plus market conditions.
“Our compliance colleagues are actually more in demand than frontline officers. In some ways I think the pendulum has swung to the other side.” Ravi Manchanda, Westpac
Today we are talking about the crisis around the Middle East, but we’ve got terrorism right on our doorstep here in Singapore and in Asia. So when you add in those additional factors, needless to say there is a bit of a downbeat outlook on trade. Lim: In times like this, people tend to try to look for innovations. What’s gratifying to me is that in the last couple of years banks and insurers have been working together, which I think is very positive for the market as a whole and even more so in a down market. That’s where everybody needs to pull in and collaborate to provide solutions to support global trade.
The current situation means banks and insurers can really collaborate as opposed to in the olden days, when trade bankers and insurers tended to be quite suspicious of one another. Insurers viewed banks as those who treated them as a dumping ground for risks, while banks viewed the insurers as those who didn’t pay claims. GTR: Swiss Re has made a real push into China recently. How is the downturn in China being felt among your insurance clients? Lim: I think it’s not just in China but globally. Once the price comes down and the volume comes down, it is inevitable that there will be an impact on clients. Take for example the P&C [property and casualty] lines: those are sort of mandatory insurance, yet we are seeing lower volumes and a continuous softening of prices – even more so for the credit business, which is a discretionary purchase. I think it’s also a reflection of the current insurance market environment, whereby claims remain broadly benign. We may need a few major claims in the market to help get the prices up. I guess it’s a bit similar to the banking side. Seerapu: The contradiction is that on the banking side, it doesn’t always seem to work that way. I am sure all of us will have seen it in our respective businesses. We have gone through periods where there is a specific perception of risk in China going up, or the commodity risk in certain parts of China going up, or there
November/December 2016 | 51
Industry leaders roundtable
was a potential of a sovereign downgrade for India three or four years back, but none of that resulted in pricing going up at the transaction level. So yes, if you see an increase in claims, then insurance premiums go up, but when the banking industry sees an increase in risk, pricing doesn’t always necessarily go up. Tandon: I think to a large extent the risks have been isolated or contained. If you looked at some of the bigger, larger trade banks and the reserves they have been taking back, banking hasn’t swung in any form for people to be concerned, like they would be for local banks, who have gone in for a very different form of lending. If you’re really into hardcore trade business and you’re working through the flows and you have visibility on what the client does, I think it’s a much better business to be in than just giving revolvers. Walli: Do you think we are funding this much as we used to? I found the stats on funding gaps at the GTR [Asia Trade & Treasury Week] conference interesting. Do you think we are funding as much as we used to five or six years ago? Seerapu: Beyond our willingness, I would like to be able to fund more, but within the defined target markets where we are operating, the demand is not there because of global volumes and global values, or because the pricing does not make sense in some segments in terms of return on capital. There are some segments where,
52 | Global Trade Review
however much I would be willing and able to lend, it does not make economic sense for me to do so at current pricing levels. The fact that we have reduced lending is more a factor of there not being enough demand at the right price. Manchanda: There are different levels of playing field. Some banks subscribe to Basel I or II, and we are Basel III, so there are different regulatory requirements. When it comes to volumes and the price being down, I think the competition is also foreign banks, and when I say foreign banks I mean Chinese and Japanese banks. Their pricing is completely different, and they are on negative interest rates so they can lend anything above zero. When you have that kind of audience also eating into your lunch, that’s where the biggest challenge is. Competition is increasing, so we see Chinese banks investing in India for example, Chinese banks moving into Asia in a big way, into Australia in a very big way, even Singaporean banks are moving into Australia, so the Australian banks are also being affected by that entry. Walli: I notice now that we bankers are complaining less about KYC. We have all reached the conclusion that whatever pain we are going through is a shared pain and we all have pretty much the same requirements, so from that perspective, I find that the noise has calmed down a bit. This actually makes it a lot easier to
do business, and especially we, as product folks within our organisations, are trying to keep our products front and centre. Elwood-Russell: Aside from KYC, I think the new challenge is trade-based money laundering. In our discussions with regulators, we’ve found that they are not there to stop business. The interpretation
“Beyond our willingness, I would like to be able to fund more, but within the defined target markets where we are operating, the demand is not there.” Shivkumar Seerapu, Deutsche Bank
by the compliance teams of those regulations are sometimes exaggerated, misunderstood and misinterpreted. The regulators have been very clear. They say: ‘In order to do trade finance, if you are a trade finance bank, you have to make sure that you have the right standards and the minimum amount of things to protect against trade-based money laundering.’ For the compliance teams, there is no reason for them to be experienced in or understand over and under-invoicing. They don’t have the experience of trade
Industry leaders roundtable
transactions. They don’t know about different types of trade fraud. But I do think that there is misinterpretation of what the rules put out by the regulators are – which are actually very clear, and there are ways to mitigate against those. So with regard to the internal battles I feel sorry for front office teams, because we do the deals, and we get to the end and compliance doesn’t understand how the deal is working and adds lots of rules. That’s putting huge delays on transactions. I think that there is a big exercise in compliance understanding the types of trade deals that are out there. Manchanda: I think because some of us belong to a mothership that is not necessarily in Singapore – some of us are in Germany; in my case it’s Australia – you’ve got to deal with regulators back in those countries. And their interpretation of certain regulations is different from the local jurisdiction where you operate from, so again that mismatch also needs to be taken into account when looking at compliance and KYC. So definitely a lot of that is internal, but I also think it’s cross-border. Seerapu: Still, in some very cynical ways, some good has come out of it. It has definitely forced my teams to stretch themselves and find ways out of their comfort zones. 2013/14 was the all-time best year for all trade banks, and hand on heart, for a lot of banks it was because
of the opportunities in renminbi (Rmb). I don’t think we did anything special to deserve that other than being there with the right products and structures to capture the opportunity. Now banks are looking at clients, spending time with them, finding out where the niche opportunities are and finding out where we can add value through complex long-term solutions, rather than just confirming Chinese letters of credit (LCs) and making money. I think that has opened up areas of opportunity and when the cycle returns, when the rest of the business comes back, we’ll all be better off for it in my view. Tandon: The business itself is changing. If you look now at the new digital economy, how are our products today fit for purpose for that economy? It’s a very different ballgame. So I think that’s the exciting part about this and that’s why I fully believe that yes, these are challenging times, but there is a huge amount of opportunity out there. GTR: Does that excite or worry you? Tandon: It excites me because it’s challenging us to actually think about how we do this. Walli: I think transaction banking is one of the most flexible, changeable and responsive areas of banking. To respond to what Sanjay was just talking about,
the paradigms keep on changing and there are gaps, absolutely, but I find that in transaction banking, as someone who’s done this for 15 years, we keep on responding to them, don’t you think?
“There are gaps, absolutely, but I find that in transaction banking, as someone who’s done this for 15 years, we keep on responding to them.” Azim Walli, BTMU
Manchanda: You’re responding because there is a change in needs within the community, the customers. Here, you’ve got fintech stepping into your space, you are now dealing with a different market participant as well, so in some ways you’re dealing with both. GTR: Has anybody around the table invested in fintech for trade, or have you been developing solutions inhouse? Walli: Both at head office and within the region with various partners, we are exploring blockchain technology very seriously. There are initiatives that are moving into proof of concept.
November/December 2016 | 53
Industry leaders roundtable
Seerapu: It is the same for us at Deutsche Bank. We are actively exploring and testing the use of blockchain technology. Manchanda: In our case, we’ve taken an equity stake in a fund called Reinventure, which is also a fund we set up. It looks at ways of digitising areas within the bank itself, with the view that if it’s well tried and tested, we’ll then market that product across to other institutions. That’s one thing that has gone very well. We also funded a client in Australia that is involved in agri blockchain, where they track the growth of grain from seed to sale and then post the information onto a blockchain ledger to which people can subscribe and buy from at a particular point, however many bushels they need to buy. That’s actually gone down very well. These are areas where we’re investing but I don’t think per se that there’s a big burst in terms of desire to embrace it. I think that everyone is talking about blockchain, but we have to look at which areas are going to benefit us most. Tandon: We’ve taken equity stakes in some fintech companies that are looking at the entire cycle, whether it’s invoice to cash or the procure-to-pay cycle, as to how technology is going to change the way the supply chain or the distribution chain ecosystem works and operates. What these companies are also doing is going deeper into more regulated markets, so for instance China. Now in China, all
54 | Global Trade Review
of you know that there is a huge spectre of VAT invoices. Before you have financing you need to get paper, you need to ratify it, and so on, so there are companies now who are being authorised by the government to provide the e-services around this. We are working on this and having discussions around this. Tradeshift is one company that is doing this in China.
“We have got this big aspiration to look at big data, smart analytics, really using data to help you make smart, informed decisions.” Albert Lim, Swiss Re Corporate Solutions
Lim: I think fintech, in some way, has already been happening, albeit in a very sporadic manner, for the past many years, in areas such as online purchase of life insurance and travel insurance. However, with the changing market landscape we are facing, it is a tougher environment and people are looking for something more structured and targeted. Increasingly insurers are leveraging on the internet to reach the mass market, especially the personalised line. We have got this big aspiration to look at big data, smart analytics, really using data to help
you make smart, informed decisions. It basically rests on the four key pillars of data, technology, people and relationships. I think it fits quite nicely with what everybody’s talking about in fintech. GTR: Jolyon, as a lawyer, is fintech something that you get a lot of enquiries about? Ellwood-Russell: Yes, certainly most recently and it is something that I am absolutely fascinated by because it’s very disruptive. This is partly because there are two sides to it: the front-end disruptive technology that isn’t threatening banks at all just yet, but has the potential to, and which has been around forever; and on the other hand, there is the backend which smoothes out the processes around trade and tries to make them all easier and cheaper by getting rid of paper. The challenge for the lawyer is that a transaction is two things in one: the delivery of goods and the exchange of documents. That is how every sale of goods is interpreted in the law. And so it doesn’t matter how much blockchain or technology or anything is there, when you have a situation like Hanjin where you’ve got US$14bn-worth of assets sitting somewhere in the middle of the ocean, it’s still the fact that you failed to deliver, and the injured party has got to know the documentation process to get recourse
Industry leaders roundtable
from someone. It doesn’t take away the fundamentals. That’s the very thing that we are trying to take people back to: it’s still law. The fundamental principles of law and the intention behind trade financing of a transaction are still all there. GTR: How do you see this industry changing, looking to the next five years? Do you think trade finance teams need a new set of skills? Walli: I think we’re all going to be a lot more preoccupied with the benefits that technology can give us in terms of visibility for our customers, which is what they’re looking for, around driving up the bottom line, margin compression – all of this is supposed to be aided by the exponential growth in technology. We’re talking about skillsets and what we look for when we’re hiring, and I think this is a sign of what’s to come. I think you just imagine what the technology space is going to provide us in the way of solutions for our customers. Seerapu: In five years’ time, I don’t think the core of what we do will significantly change. I think around the edges definitely it will look different. As an example, look at the senior hires we made in recent years in the trade team, one person came from debt capital markets, one had a loan syndication background, and one had a securitisation background. The reason we did that is because even though they don’t know LCs
or guarantees or supply chains, they can add so much value by encouraging our sales teams to think very differently in terms of the size of the deals that they can aspire to, in terms of how we can package and engage much more intelligently with the secondary market. These are senior, director-level hires who have never worked in trade finance. I think that we will probably see a lot more of that kind of influence in the trade space five years from now.
“The fundamental principles of law and the intention behind trade financing of a transaction are still all there.” Jolyon Ellwood-Russell, Simmons & Simmons
Tandon: It’s very much a credit business now. 90% of trade is open account, and as you start looking at the skillsets, it’s understanding credit. It’s understanding a client’s balance sheet. It’s understanding what their cashflows are. I think five years down the line, technology will certainly be deployed much more inclusively into that. And for large shops like ours, the use of the optical character recognition (OCR) or artificial intelligence to make decisions on sanctions and AML monitoring is becoming a reality. It’s a reality, things
are going to change and we do hope we’ll still have jobs. Walli: I can’t wait for OCR to become a vernacular. That is going to be a game changer for all of us and really it should be the status quo. It will be very beneficial both on the traditional LC side and the open account side. Lim: It is inevitable that things will change and technology will help this. When it comes to innovation in the trade business and insurance as well, everybody will have to work alongside each other and learn to see things from a different lens, for example from the traditional ‘originate and hold’ to ‘originate and distribute’. New channels of distribution, technology, big data and analytics will help us all make smarter decisions to make the world of trade go round. Elwood-Russell: Innovation comes in many forms and I think we forget that it’s not just about technology. Technology is a facilitator but process innovation is equally as important as any technology. So with that, I think that people should not be too distracted and too downbeat. People say that trade is archaic, but in fact it is not, because actually you’re getting goods across the world, from South America to China for example, getting paid on time at pretty low costs. It’s pretty good work and increasingly with innovation, the aim is to drive it even cheaper and that’s where the value will be.
November/December 2016 | 55
Only Ecobank gives you The Network Advantage CORPORATE AND INVESTMENT BANKING Translating our local knowledge into busineSS opportunity. Transacting swiftly and securely across 35 countries. Transforming Africa’s trade corridors with landmark deals. That’s what we call THE NETWORK ADVANTAGE.
Trade funds report
Lake Manyara National Park, Tanzania
HSBC and StanChart back development of Ghana offshore gas field
SBC and Standard Chartered have issued a US$500mn standby letter of credit for the development of an offshore gas project in Ghana in an effort to boost the country’s power production. The letter of credit was issued on behalf of Ghana National Petroleum Corporation (GNPC), Ghana’s national oil company. The facility will guarantee GNPC’s payments to energy companies Vitol and ENI for gas extracted from the offshore Sankofa field and piped onshore for power generation and industrial and domestic consumption. HSBC France acted as agent on the deal and coissued US$250mn along
with Standard Chartered. The tenor for the deal is up to 17 years, including a twoyear commitment period prior to production followed by 15 years of effectiveness. Law firm DLA Piper advised the banks. The facility is covered by the International Development Association (IDA), a member of the World Bank Group. IDA’s guarantee was approved by the World Bank board in July, along with a US$200mn guarantee from the International Bank for Reconstruction and Development (IBRD) for private financing. The guarantees are expected to mobilise US$7.9bn in new private investment for offshore
natural gas. The Sankofa field, located 60km off the coast of western Ghana, is being developed by Italian oil and gas company ENI and is due to start producing gas in 2018. The project is expected to contribute to the improvement of the energy matrix in Ghana and boost the country’s power availability. “The Sankofa integrated oil and gas project will be Ghana’s third operating field in quick succession. Gas from the field will provide baseload fuel to generate about 1,100MW of electricity in Ghana for 15 years,” says Alexander Mould, acting chief executive of GNPC. Ghana has been grappling with power capacity shortages
“Gas from the Sankofa field will provide baseload fuel to generate about 1,100MW of electricity in Ghana for 15 years.” Alexander Mould, GNPC
for decades. The gas piped onshore from the Sankofa field will primarily be used for local consumption and possibly exported to adjacent countries, the banks say in a statement. ENI holds a 44.4% stake in Sankofa, Vitol 35.6% and GNPC 20%.
Afreximbank earns first China Exim guarantee
hina Exim (Cexim) has issued a guarantee outside of China for the first time, on US$300mn of loans for the African Export-Import Bank (Afreximbank). The finance comes in two tranches: a US$250mn syndicated facility and a US$50mn bilateral deal, with the latter coming directly from Cexim’s own balance sheet. The syndicated facility was guaranteed by Cexim, marking its first guarantee for a non-Chinese borrower and by default, its first on the African continent, a Standard Chartered spokesperson confirms to GTR. Standard Chartered acted as sole co-ordinating bank and documentation agent, as well as sole bookrunner on the syndicated facility, which was oversubscribed by 100% and included 15 lenders. The other 14 are: Cexim, China Merchants
Bank, Shanghai Rural Commercial Bank, Industrial and Commercial Bank of China, CTBC Bank, E Sun Commercial Bank. Land Bank of Taiwan, Mega International Commercial Bank, Bank of Taiwan, First Commercial Bank, KEB Hana Bank, Woori Bank, The Shanghai Commercial & Savings Bank and Taipei Fubon Commercial Bank. Afreximbank will use the finance to on-lend, with the Cexim guarantee allowing it to do so at a lower cost. Cexim’s Shanghai branch chairman Li Li says: “Afreximbank and Cexim have longstanding good relations. Cexim is positive and confident about working with Afreximbank to boost Africa’s economic development and increase trade with China. This syndicated facility would enhance the two institutions’ ability to achieve our mandates.”
Commenting on the facility, which according to Afreximbank is its first-ever China/Taiwan-specific loan, the bank’s executive vicepresident Denys Denya says: “This syndicated facility helps position Afreximbank to strengthen its role in the development of trade between Africa and the rest of the world, in particular China and the rest of the Far East. The conclusion of this facility demonstrates Afreximbank’s increasing ability to attract much-needed resources into Africa and to fund trade finance-related investments that will have a positive impact on Sino-Africa trade.” Denya adds that the loan will help Afreximbank to achieve its liability management objective of reducing the cost of funds and diversifying its liability book by geography, investor type and tenor. The loan was closed just
“Cexim is positive and confident about working with Afreximbank to boost Africa’s economic development and increase trade with China.” Li Li, China Exim
two months after Afreximbank and Cexim signed a US$1bn co-operation agreement to promote and finance the development of industrial parks and special economic zones across Africa, as well as providing capacity for light manufacturing and primary processing of raw materials and commodities. It would also cover logistics that facilitate intra-regional trade.
November/December 2016 | 57
Cocobod continues to draw wide support
he Ghana Cocoa Board (Cocobod) has signed a US$1.8bn pre-export finance (PXF) facility with 23 banks to fund the 2016/17 cocoa crop. The receivables-backed syndicated loan, which will be structured similarly to previous Cocobod annual trade facilities, was oversubscribed by US$640mn. It was signed on September 21 in Frankfurt, Germany. The facility was priced at 67.5 basis points (bps) above Libor, an increase from 62.5bps offered in 2015, and 60bps in 2014. Speaking to GTR, a source close to the deal says the increase in pricing is negligible in a time of reduced risk appetite amongst most banks worldwide, with stricter regulations having resulted in many downgrades and fines for financial institutions over the past couple of years.
“The banks’ own cost of funds will have gone up in many cases much more than this – even by multiples of this, and even for a short-term deal like this,” the source says. “If anything it’s a testament to the sustained pulling power of Cocobod that they can still hold banks to these prices.” The facility was underwritten by the Bank of Tokyo-Mitsubishi, Deutsche Bank, Natixis, Nedbank, Rabobank, Société Générale and Standard Chartered as co-ordinating initial mandated lead arrangers (MLAs), with the co-operation of DZ Bank as co-arranger, and Ghana International Bank as initial MLA. Bank of China, Crédit Agricole CIB, Intesa Sanpaolo, Rand Merchant Bank, Sumitomo Mitsui Banking Corporation, ABN Amro and KfW Ipex-Bank joined as senior mandated lead arrangers.
“The banks’ own cost of funds will have gone up. If anything, the deal pricing is a testament to the sustained pulling power of Cocobod that they can still hold banks to these prices.” Unnamed source
Standard Bank, State Bank of India, Mizuho Bank, Barclays, Attijariwafa Bank Europe, Ecobank Ghana and Fidelity Bank joined subsequently in general syndication. Law firm Sullivan & Worcester advised Deutsche Bank and the syndicate of lenders. The proceeds from the loan will be used to purchase the main cocoa crop for the 2016/17 season, which begins in October. According to Cocobod’s chief executive Stephen Opuni, the cocoa
board expects to purchase 850,000 to 900,000 tonnes of beans in the new season. Cocobod’s output target for the 2015/16 season was also set at 850,000 tonnes, but a government source told Reuters that output had been reduced to 780,000 tonnes due to severe and prolonged drought between December and March. The annual loan, which is the largest pre-export soft commodity financing facility in Sub-Saharan Africa, is the 24th of its kind since it was established in 1992.
related non-performing loans (NPLs) and withdrawals of public sector deposits are likely to face similar interventions,” says Besseling. Going forward, the ability of Nigerian banks to meet new financing needs will be challenged as the CBN is still intervening to prop up the naira’s official value, he explains. “Chronic shortages of foreign currency have stymied economic growth and resulted in massive capital flight. Banks continue to face pressure from NPLs, a plunging currency, and serious foreign exchange shortages,” he adds. “In response, Nigeria’s 21 banks are cutting costs and closing branches.” The manipulation of the
currency regime will again increase the risk of state bankruptcies and a banking sector crisis, says Besseling, although he adds that a more systemic banking crisis will be partially mitigated by additional loans that have been allocated in Nigeria’s US$30bn expansionary budget, which will allow distressed states to regain the ability to service their debts and pay salaries. “The government plans to raise US$10bn of new debt of which US$5bn would come from foreign investors. However, continued manipulation of the naira would frustrate any attempts by the finance ministry to attract new capital investment.”
Nigerian banks face renewed upheaval
igerian companies seeking access to financing will face frustration as Nigerian banks go through a fresh phase of upheaval and government intervention. So says Robert Besseling, executive director of specialist intelligence company Exx Africa. Hit by falling global oil prices and crude production cuts, the country confirmed recently that it is in technical recession: its gross domestic product (GDP) dropped by 2.06% in the second quarter of 2016 after falling 0.36% in the previous three months. The technical definition of a recession is two consecutive quarters of negative growth. In August, the country’s central bank (CBN) suspended
58 | Global Trade Review
nine lenders from the interbank currency market. According to Besseling, the move indicates that the government seeks “greater powers” to intervene in the failing economy. The move was “a clear warning to commercial banks that the CBN intends to take a tougher stance on alleged non-compliance”, Besseling tells GTR. According to a media note issued by Exx Africa, President Buhari is likely to intervene with distressed lenders, local oil producers, electricity generating companies and fuel marketers, which could include a new wave of dismissals and prosecutions of senior managers for criminal mismanagement. “Commercial banks that report losses caused by oil-
SUSTAINABLE TRADE SOLUTIONS
Specialising in commodity-based financing solutions, Nedbank Corporate and Investment Banking covers all aspects of commodities, from the procurement of raw commodities to production and consumption. The team is comprised of experienced individuals who offer clients unique funding solutions that include preexport finance, prepayments, borrowing base financing, collaterally managed agreements, revolving credit facilities, input finance and bank risk mitigation. To partner with a corporate and investment bank that understands the African continent contact Sekete Mokgehle on +27 (0)11 294 3046 or at email@example.com. Nedbank Corporate and Investment Banking is a division of Nedbank Ltd Reg No 1951/000009/06. Authorised financial services and registered credit provider (NCRCP16).
Trade funds report
Funding over the cracks Africa’s trade finance funds sprang up to fill the gap created by banks derisking after the financial crisis, but the demand for financing far outstrips the size of even the largest funds – and this is unlikely to change anytime soon. Michael Turner reports.
anks have increasingly come under the cosh from regulators for almost a decade as their capital reserves get held up to ever-more strenuous scrutiny. Financing trade in Africa has, for many, fallen by the wayside. “There’s definitely very little fresh money from banks for trade finance,” says Nicolas Clavel, chief investment officer at commodity finance fund Scipion Capital, which has more than US$150mn of assets under management. “There are a lot of people that want to deploy money in Africa, but because the banks have slashed staff over the last 10 years, there is far less specialist knowledge within the banks and less resources to train new staff.”
60 | Global Trade Review
Trade funds report
African bank-intermediated trade is big business. Precise numbers are hard to come by, but the African Development Bank estimated it to be between US$320bn and US$350bn in 2011-2012. But even at the top end of estimates, the funding gap for the same timeframe was thought by the development bank to be much as US$120bn. “These figures suggest that the market is significantly underserved,” the supranational lender said in a 2014 report – and increased regulatory treatment of capital means the deficit has likely only grown larger since then. As well as leaving a market underserved, banks are missing out on the cross-sell opportunities that come with financing trade. Analytical firm East & Partners estimates that US$1 in trade finance fees can bring a bank another US$1.70 in foreign exchange and crossborder payment fees and another US$2.25 in other transactional banking revenue. “Regulatory regimes, and in particular capital requirements within banks, has been one of the primary reasons for the lack of facilitation of trade,” says Lisa Majmin, a fund strategist at Barak Fund Management, which had more than US$250mn of assets under management (AUM) as of the end of 2015.
“If you have to have a custodian to hold an asset domestically [because you do not have a presence in a country], it can be really expensive.” Unnamed source
Bug out There have been some high-profile moves away from Africa by banks that were once synonymous with trade finance across the continent – the clearest of which comes from Barclays. Although the UK bank is not the only lender cutting its exposure, it is the one that has made the biggest U-turn after touting the region as a major business opportunity when it ramped up its stake in South Africa’s Absa in a US$2.2bn deal in 2013. Barclays is now reducing its stake in its African business from 62.3% to around 20% over the coming years, as it seeks to cut its regulatory capital allocation costs. And even those banks not doing an about-turn on their African aspirations have drastically reduced lending on the continent. Again, it is tricky to record accurate data on volumes because of the private nature of the loan market, but the African Export-Import Bank (Afreximbank) reckons that trade-related bank lending and syndicated lending to developing economies plunged by 33% and 35%, respectively, between 2011 and 2012. The cost of loans also ballooned with their rarity, while available maturities shrank. Borrowers that were able to secure a loan in 2012 could expect to pay up to 250 basis points (bps) more than they would have done for the same deal a year earlier, with bilateral bank loans and syndicated lending
costing an average of 250bps to 350bps – well up from the 100bps to 150bps borrowers could expect to pay pre-financial crisis, according to Afreximbank. Lengthy maturities also vanished, with tenors becoming “mostly less than six months”, Afreximbank said. In mid-October, the Ba1/NR/NR-rated Eastern and Southern African Trade and Development Bank – known as PTA Bank – signed a US$400mn dualtranche syndicated loan that pays 230bps over Libor for a two-year tranche and 250bps over Libor for the three-year portion, so prices for deals are still roughly at 2012 levels, though maturities have significantly lengthened.
Out of the loop The ever-diminishing bank finance market has led to Africa’s smaller exporters being cut out of the funding loop, as banks feel increasingly and exclusively comfortable financing larger corporates. “There is a mismatch between what smaller traders want and what banks are prepared to provide,” says Clavel at Scipion. The average loan provided by Scipion is around US$3mn to US$5mn, while at Barak, average amounts run smaller at US$600,000 to US$700,000. The borrowers that need deals of this size make up a demographic of exporters that is easy to overlook for banks, according to trade finance funds, as they are generally small-scale operations that have net asset values and revenues that are below what banks are happy – or even able – to consider. This is where trade finance funds step in. The funds interviewed for this article insists that they have strong on-the-ground presence, which includes vigorous know-your-customer (KYC) procedures for every recipient of funding, with repeat clients making up significant portions of the funds’ borrower base. Trade finance funds are also able to finance small parts of a wider export chain that banks will not touch. One example might be goods being exported from the Democratic Republic of Congo (DRC) to South Africa. Banks might be willing to provide commodity finance once the goods enter a country where they have an on-the-ground presence such as Zambia and fund their transport all the way to their final destination, but that is of limited help to a commodities trader if they cannot get their goods out of the DRC in the first place. “If you have to have a custodian to hold an asset domestically [because you do not have a presence in a country], it can be really expensive,” says one source who did not want to be named for this article. “Typically, the big custodians are nervous about Africa.” The higher risk profile of the deals means that exporters have to pay more than they would if they were able to take the traditional bank route. “Borrowers pay slightly higher rates than they would at a bank,” says Majmin at Barak, adding: “Barak has the ability to process deal flow far quicker, and focuses more on the trade and collateral, as opposed to the traditional banking balance sheet metrics – these borrowers cannot get a bank loan [in a reasonable time] or, in some cases, at all.”
November/December 2016 | 61
Trade funds report
Commodity crunch There is some disagreement among those operating in Africa about the impact of the commodity price crash on the viability of trade finance funds on the continent. “There has been a huge impact from the commodity price movements,” says the source, who works at a company that provides clerical services to funds operating in Africa, and therefore likely has a wider view of the fund market than individual portfolio managers. “Oil, coffee and cocoa have all affected deals.” Oil has seen some of the most pronounced falls of any commodity in recent years, with the price of Brent crude plunging from US$114.81 a barrel in June 2014 down to US$27.88 in January this year. The price has since recovered slightly following numerous headlines from OPEC and other major oil exporters about the possibility of cutting production, and Brent was trading at US$52.78 on October 11. “Remarks from Saudi Arabia’s energy minister Al-Falih and Russian President Putin suggested that both nations were ready to co-operate and implement an oil production freeze or cut,” says Trieu Pham, a strategist at Mitsubishi UFG Securities. The Saudi energy minister even went so far as to say in the second week of October that “it is not unthinkable that we could see US$60 [a barrel] by year-end”. This would be an enormous boon to Africa, as even the non-oil-based economies would benefit from the increased capital expenditure and trade needs of their oil-producing neighbours that would come with higher oil prices. The funds spoken to for this article insist that the price crashes in oil and other commodities have not hurt their businesses, and looking at the returns each fund has provided, it’s hard to disagree. Barak expects a return of around 12% for 2016. The fund has made returns to within around 15bps of that level since inception, suggesting that the forecast looks likely. This also means that investors in the fund have benefited from lower volatility and higher returns than equivalent high-yielding emerging market bonds, which would be the more obvious choice for yieldhungry African-focused investors to allocate capital. Telecoms infrastructure company Helios Towers Nigeria, for example, was deep in high-yield territory with single B ratings from both Standard & Poor’s and Fitch when it printed a US$250mn five-year non-call 3 bond in 2014 at a coupon of 8.375%. Holders of those notes have faced a torrid time, with the yield leaping into the 20%s in March this year – equal to a cash loss of almost 30 cents on the dollar if they bought and held from the beginning – before settling at 8.65% in early October, according to bond traders. Compared to that enormous swing in yield – and the stomach-churning nose dive in the bond’s price during the period – a 15bps range on 12% is far easier to stomach. Meanwhile, Scipion targets a more modest 5%plus return. “If you can produce returns north of 5%, then you
62 | Global Trade Review
will be happy,” says Clavel at the fund. “In today’s climate, 5% is the new 10%.” Furthermore, liquidity in emerging market bonds can be patchy, particularly in times of strife. Barak says it can liquidate any investors’ assets within a 90-day turnaround period. Just under US$22mn had been redeemed by Barak’s investors as of December 31, 2015, according to the company.
Gear up The difference in returns between the two funds comes down to a variety of factors, with leverage being a major influence. Scipion does not use leverage in its funds, while Barak’s new Mikopo structured credit development fund is geared up by 2.5 times and is hoping to hit eye-popping returns of 12% to 16%.
“If you can produce returns north of 5%, then you will be happy. In today’s climate, 5% is the new 10%.” Nicolas Clavel, Scipion Capital
Despite the difference in returns, the funds both purport to attract similar investor bases – institutional investors and high net-worth families based out of Switzerland and the Middle East both feature – though the small size and number of African trade finance funds are probably what drive similar investors into funds with such different investment strategies. And trade finance funds will likely keep it that way. “I do not see any individual fund being more than US$5bn three years from now,” says Clavel at Scipion. There are multiple elements holding funds back from extraneous growth. The first is that there are simply not enough deals to finance, or finance fast enough, if money begins pouring into the funds at a rapid rate. “There is a correlation in the amount of assets under management you have and the amount of people you need to run a credit fund,” says Clavel, alluding to the extra manpower it takes to put ever-larger swathes of money to work. And in an industry that promises up to low doubledigit returns, sitting on cash can be disastrous with central bank interest rates as low as they are. So what is a trade finance fund to do to ensure they can find deals to finance and keep those returns high? One option is to follow the demands of the rapidly growing middle class, away from raw commodities and towards high-value items. “As the consumer evolves, so will the funds,” says Majmin at Barak. “We do not see the demand for trade finance changing dramatically because banks are unlikely to provide the credit, however, the type of products being funded will change. “We are funding more fast-moving consumer goods now, for example, which also serves to diversify our portfolio.”
CORPORATE AND INVESTMENT BANKING
Grow your business with fast and secure pan-African transactions Translate | Transact | Transform
Transacting swiftly and securely across 36 countries. Translating our local knowledge into business opportunities. Transforming Africaâ€™s economies with landmark deals. Thatâ€™s what we call The Network Advantage. For a corporate and investment bank that gives you the network advantage, talk to Ecobank.
Taking a fresh look at trade in Sub-Saharan Africa With trade flows growing in Sub-Saharan Africa, there are significant opportunities to improve efficiencies and reduce risk by using a single gateway to consolidate and manage letters of credit across the region, write Sanjeev Oza, head of supply chain finance for Sub-Saharan Africa and Wale Soyingbe, trade head for Sub-Saharan Africa in Treasury and Trade Solutions at Citi.
frica is an increasingly important market for corporates. Although GDP growth in Sub-Saharan Africa (SSA) is expected to slow to 3% this year (from 4.5% in 2015), it remains strong: only South and East Asia will grow more rapidly 1. And while the end of the commodity boom has taken its toll, estimates released in October 2015 by the International Monetary Fund show a 16% increase in foreign investment in Africa in the previous year 2. At the same time, companies from the continent are expanding into new regional markets: intra-Africa trade is expected to grow strongly and many companies have created centralised hubs to manage their activities in the region. However, operating across SSA presents a myriad of challenges. For companies with trade flows in the region, one significant pain point is the complexity associated with the widespread use of letters of credit (LCs) in SSA. LCs remain critical to trade in SSA because of the need for credit risk mitigation given higher levels of risk in many countries compared to developed markets. Although LC volumes in SSA have fallen steadily in the past three years (from elevated levels in the post-crisis period), there is evidence to suggest that a plateau has now been reached. The use of LCs is not problematic in itself: in addition to risk mitigation they offer valuable
64 | Global Trade Review
opportunities to enhance working capital via LC discounting. However, for companies operating in multiple countries across SSA the need to establish a relationship with a bank to advise or confirm an LC adds costs and complication to the management of trade flows, not least because of greater know your customer (KYC) scrutiny in recent years. A further challenge is the difficulty in finding a bank that maintains a wide regional and global correspondent banking network to connect exporters in SSA with their various international trade partners.
Changing bank networks Many banks are reassessing their global operations in light of changing bank regulations relating to money laundering, terrorist financing and capital requirements, as well as the need to manage costs in a tough business environment. In response, some banks are withdrawing from certain relationships, products or even jurisdictions. In addition, some global banks are in the process of rationalising their correspondent banking relationships for many of the same reasons. Africa has been particularly affected by this derisking phenomenon, with a number of regional banks retreating or refocusing their activities and some global banks seeking to reduce their compliance risks by ending correspondent relationships, some of which had been in place for several years.
Some companies have found themselves forced to find new banks to meet their LC needs as a result of bank restructurings and changes in correspondent banking relationships. Furthermore, some corporates have used the opportunity created by banks exiting certain trade finance markets to reorganise their LCrelated processes in order to seek greater efficiencies.
LC Confirmation & Discounting
Seeking greater trade efficiency In order to manage growing trade flows in Africa, corporates need an effective solution that streamlines LC-related processes and minimises complexity and duplication of tasks while achieving credit risk mitigation for LCs issued in unfamiliar markets. Ideally, many companies want a single partner to ensure consistency of service and competitive pricing and also require fast trade processing and the ability to gain working capital relief under LC structures. For many corporates, it is important to have access to on-the-ground knowledge so that regulatory, risk management and other issues can be remedied rapidly. To help corporates achieve these goals some international banks have sought to create hubs that aim to support client trade flows across the region. However, to date none of these have been based in SSA or offered comprehensive coverage region-wide that would enable clients to achieve the efficiencies they want. Alternatively, some local banks have
MT700 traffic from the rest of the world flowing into Trade Services Hub MT700s then advised/confirmed by Trade Services Hub to SSA countries (Citi branches and correspondent partners)
“In response to clients’ needs, Citi has established a new cross-border trade services hub to serve the region. The hub is one of four globally and is part of one of the largest trade service networks in the world.” Wale Soyingbe, Citi
developed a pan-SSA presence but do not offer a full range of LC-related solutions. And importantly, these banks do not have international capabilities that would allow for seamless trade management.
A truly African hub In response to clients’ needs, Citi has established a new cross-border trade services hub to serve the region. The hub is one of four globally – serving Asia, Latin America and Europe and the Middle East – and is part of one of the largest trade service networks in the world, spanning 124 cities in 71 countries and is served by 200 Citi trade specialists. Citi’s facility is based in Johannesburg, ensuring that its experienced trade professionals can offer authoritative advice and support trade and financing needs on a region-wide basis. Crucially, Citi’s SSA hub offers a single entry point for LCs coming into the region, which are then advised or confirmed to Citi’s branches present in 11 SSA countries or to its correspondent banking partner network of 130 banks across 34 SSA countries. This delivers considerable efficiency and simplicity benefits:
Sanjeev Oza, Citi
there is no need for LC-issuing banks to establish or maintain relationships with multiple branches or correspondent banks across SSA. Instead, the issuing banks simply direct their flows to one Swift code, namely Citi’s SSA hub. The LC beneficiaries are also able to present LC documents at local Citi branches, enhancing convenience. Using a single hub for the region maximises operational efficiency and minimises operational risks, delivering faster turnaround times while providing a single point of contact for enquiries and issue resolution. Moreover, the hub makes it easier and faster for companies to grow their business in SSA: entering a new market no longer requires a long and complex search for a suitable bank to manage LC business. And by working with one of the world’s leading trade finance banks, corporates can be confident that they are leveraging best-in-class operations and technology such as CitiDirect BE® for Trade, which provides real-time reporting and transparency on transactions 24 hours a day, seven days a week.
www.worldbank.org/ en/publication/globaleconomic-prospects 2 www.africaneconomic outlook.org 1
November/December 2016 | 65
West Coast Trade & Working Capital Conference 2016
Latin America Trade Finance Conference 2017
US Trade & Working Capital Conference 2017
November 17, 2016 San Jose, US
April 27, 2017 SĂŁo Paulo, Brazil
October, 2017 Chicago, US
For more information please contact Grant Naughton at firstname.lastname@example.org or visit www.gtreview.com
El Capitan, Yosemite National Park, United States
US dollar debt grows in Argentina
rgentinean companies are increasingly turning to dollardenominated commercial loans in US dollars to avoid the country’s inflation-busting high interest rates. Corporate dollar debt grew by 8.9% (US$590mn) in September, compared to a 2% rise in Argentine peso loans. In the first nine months of the year, US dollar financing increased by 170% (US$4.95bn), according to a monthly report by Argentina’s central bank (BCRA). Foreign currency loans in the country have now exceeded US$8.5bn, a number not seen since July 2012. In February 2014, they were at US$3.5bn, their lowest level on record. However, some experts are not yet worried. “Despite the sharp rise, private dollar debts are still very small as a share of the total economy and shouldn’t cause too much of a concern for overall financial stability,”
not have a US dollar revenue stream. As things stand, though, we wouldn’t be too concerned, but it’s something worth keeping an eye on.” Meanwhile, foreign currency reserves dropped by US$1.25bn in September, standing at US$29.9bn at the end of the month. According to the BCRA, this is due not only to the growing demand for US dollar loans, but also
the placement of sovereign debt on the local market, which the treasury then used to meet its US dollar debt maturities, and to the release of foreign currency to supply the foreign exchange market. “While dollar debts for the government have increased too following the issuance of the US$16bn bond earlier in the year, this is still not a risk to broader financial stability,” Glossop says. Argentina returned to capital markets in April 2016 after renegotiating its debt with sovereign bondholders. Now the country is returning to a normal use of such financing instrument: in August, Banco de Inversión y Comercio Exterior (Bice) launched an SME financing programme funded entirely through the capital markets, and recently collective deposit agent Caja de Valores announced its full Swift connectivity, meant to enhance the country’s capital markets revitalisation.
opened a branch in Houston, Texas, to trade refined products, natural gas and asphalt. As part of its establishment there, it has appointed Bank of Texas as its primary cash management bank in the US. Bank of Texas is part of
the larger BOK Financial Corporation, a Southwestern US bank. In 2015, the commodities trading house generated US$64bn in revenue and moved 180 million metric tonnes of physical energy and commodities.
amount needed. According to the agreement, the funds can be used for all international receivables and can benefit from additional cover from the US ExportImport Bank (US Exim). “This credit facility is
important because it allows us to be competitive on the international market. This gives us the cashflow necessary to buy materials and create new jobs,” Exodus Aviation spokesperson Chris Santana tells GTR.
“If this pace were to continue, it would pose a problem for financial stability.” Edward Glossop, Capital Economics
Edward Glossop, Latin America economist at Capital Economics, tells GTR. “If this pace were to continue, it would pose a problem for financial stability. A drop in the currency would raise the local currency value of dollar-denominated debts. That could potentially cause problems in some companies or sectors that have heavily borrowed in dollars and do
Gunvor gets US$500mn for US activities
unvor USA has secured a US$500mn syndicated borrowing base credit facility to support its newly-established US operations. The mandated lead arrangers on the loan are
Rabobank (also administrative agent) and ABN Amro Capital. Other lenders include ING Capital, Natixis, Société Générale and Crédit Agricole CIB. Gunvor USA, the whollyowned indirect subsidiary of Gunvor Group, recently
Exodus Aviation wins export backing
lorida aircraft parts company Exodus Aviation has received backing from the Florida Export Finance Corporation (FEFC), which it hopes will help it secure funds from financial institutions.
The one-year FEFC guarantee covers 95% of a US$300,000 credit line Exodus plans to use to fund export receivables. As part of the deal, FEFC is currently approaching financial institutions to help the company secure the
November/December 2016 | 67
Low impact from ‘no’ vote in Colombia peace deal
nvestment into Colombia could slow after its citizens rejected the peace deal signed by President Juan Manuel Santos and the Revolutionary Armed Forces of Colombia (FARC), but experts remain confident that peace will be achieved. In the October 2 referendum, the ‘no’ vote led by 50.2% to 49.8%, a difference of fewer than 54,000 votes out of almost 13 million. Turnout was less than 38%. The result came as a surprise to the international community, as the deal struck between the government and rebels would have put an end to over 50 years of armed conflict. But neither Colombians nor foreign professionals with business in Colombia seem to believe that the ‘no’ vote will bring back war. “‘No’ means some specific points in the initial referendum will be reviewed by government. It means Colombians sent a message to the president that they did not accept the initial terms: because of open wounds they don’t accept political recognition for the FARC,
salaries and bonuses, as well as demilitarised zones. With this initiative, the dialogue will start over again but faster than in the first negotiation. It does not mean war again – we all are tired of it,” José Puccini, senior business manager at trade finance software firm BankTrade in Colombia, tells GTR. He believes the country’s political situation remains stable, and another agreement will be reached. “The government and the FARC guerrilla demonstrated they are willing to talk and negotiate like gentlemen, so all parties involved will be safe, including investors, citizens and economic activities,” he says. From the US, Richard Abizaid, head of the Americas and regional product leader for political risk and trade credit at XL Catlin, shares a similar view, though he foresees a short-term impact on investment. “There are a number of infrastructure projects [for example, toll roads] that are nearing financial close or will be in the near term and I suspect lenders will want
to wait and see how this vote will affect political stability. The general consensus is that the political and economic environment will remain stable despite the vote and that both sides continue to be committed to the peace process,” he explains to GTR. It is widely believed the impunity clause included in the deal is what caused the rejection, as Colombians want to see FARC guerillas brought to justice for the more than 220,000 lives lost in the conflict. Both President Santos and FARC leader Rodrigo Londoño or ‘Timochenko’ have made statements to reiterate their commitment to peace following the referendum. “I will not give up, I will keep seeking peace until the last day of my term because that is the way to leave a better nation for our children,” said Santos, while Timochenko vowed to “use only words as a weapon to build toward the future”. The government was due to start new peace talks with the country’s second-largest paramilitary group, the
“The general consensus is that the political and economic environment will remain stable despite the vote.” Richard Abizaid, XL Catlin
National Liberation Army (ELN) on October 27 in Quito, Ecuador, and Santos promised to send his chief negotiator back to Cuba (where the deal was negotiated for four years) to restart talks with the FARC. Despite the reassurance coming from both camps, long delays in getting a deal considered acceptable by the Colombian people could increase political uncertainty. “The longer it takes to renegotiate the terms of the agreement and address the opposition’s concerns or if the new terms are too onerous on the FARC, the higher the chances the FARC will engage in violence again,” warns Abizaid.
US small businesses get trade boost
he US Small Business Administration (SBA) has provided US states with a total of US$18.85mn to support regional SME export growth. The funding is part of SBA’s state trade expansion programme (Step), which was created to increase the number of small exporters in the country. The financing will help US states and territories to support small businesses in their export-related activities, including participation
68 | Global Trade Review
in foreign trade missions, foreign market sales trips, subscription services for access to international markets, as well as help designing international marketing campaigns. Illinois, North Carolina and Washington state received the largest shares at US$850,000 each, followed by California (US$844,214) and Michigan (US$820,000). In the first three rounds of the programme (2011, 2012 and 2014), recipients reported a strong return on investment,
generating US$22 in small business export sales for every US$1 awarded. Maria Contreras-Sweet, head of the SBA, comments: “Exporting provides tremendous opportunities for America’s small businesses and entrepreneurs. Two-thirds of the world’s purchasing power can be found outside of the United States, but only about 1% of America’s 28 million small businesses are reaching customers beyond our borders. Exporting is an important growth
opportunity for our small businesses that are ready to expand their reach into new and increasingly borderless global markets. These Step awards, in addition to SBA’s export loans and US Export Assistance Centres, help small businesses across our nation have the tools, resources and relationships they need to take their businesses global.” Through its export loan guarantee programme, SBA can finance up to US$5mn in working capital to help small businesses fulfil export orders.
Payment delays grow in the Americas
nsolvencies and late payments have risen significantly in the US, Canada, Mexico and Brazil, largely due to low commodity prices, according to a survey by trade credit insurer Atradius. Based on interviews with 856 corporate representatives, Atradius concludes that in the past year, insolvencies have grown in all four countries, but particularly in Canada (4%) and the US (3%). Additionally, 91% of respondents reported payment delays from foreign customers, compared to 84% in Europe, and 40% reported having to delay payment to their own suppliers due to late payments from their customers. “This increase is driven by low commodity prices,” the insurer says in a statement. “Low oil prices, slowdown in economic growth in the US and slow productivity growth
in Mexico, and the recession in Brazil, are the primary reasons for the forecasts of rising bankruptcies in these countries. This challenging insolvency environment affects the way businesses protect themselves against payment risk by B2B customers.” For example, the report finds that respondents in the Americas are notably less inclined to offer credit terms to their B2B customers, with 43% of sales value reported to be transacted on credit (down from 45% last year). There are, however, differences between countries: while the proportion of sales completed on credit hasn’t changed in the US (43%), it has increased
slightly in Canada (from 42% to 44%) and Brazil (43% to 45%), and dropped in Mexico (from 44% last year to 40% this year). Atradius also notes a tendency to sell more on credit domestically than internationally, which may come from the perception that getting overseas customers to settle bills could be challenging. In fact, the survey reveals that 49.6% of the total value of export sales made on credit in the Americas were paid late, compared to 47.1% domestically. The figure is much lower in Europe, with 38.9% of international invoices paid late.
“The outlook for insolvencies in the majority of the advanced markets, including the US and Canada, has deteriorated.” Andreas Tesch, Atradius
Andreas Tesch, chief market officer of Atradius, says: “The outlook for insolvencies in the majority of the advanced markets, including the US and Canada, has deteriorated. Regardless of the underlying reasons for this, the challenges posed by a difficult insolvency environment require that businesses resort to sound trade receivables management strategies enabling them to grow safely.”
US Exim resumes Argentina business
he US Export-Import Bank (US Exim) has reopened financing lines for exports to Argentina after a 15-year interruption. The bank is now able to offer financing for up to seven years to both public and private sector companies in the country, and will also consider supporting longerterm, structured financing. This follows a US government interagency evaluation of country prospects, which found that Argentina’s improved economic and financial environment had led to better repayment prospects. “As a credit insurer, we’re seeing a lot more transactions in Argentina, both from exporters and from banks who are financing various trade
transactions, largely from the US but also some from London. So there is demand in the market,” Jim Thomas, head of credit and political
While US Exim is still blocked from approving transactions of over US$10mn due to the lack of a complete quorum, this reopening will
“As a credit insurer, we’re seeing a lot more transactions in Argentina.” Jim Thomas, Everest Specialty Underwriters
risk at Everest Specialty Underwriters, tells GTR. “The appetite for Argentina risk is developing, but maybe not to the point where the desire to underwrite Argentina risk is commensurate with the actual demand, which is where I think US Exim will come in and bring a great deal of benefit and utility to the market,” he adds.
send a positive message to the market about Argentinean prospects. The bank identifies aircraft, helicopters, satellites and farm, power and medical equipment as the most promising sectors for US involvement in the country. It also hopes to capitalise on Argentina’s recent focus on promoting renewable energy.
“Other ECAs have been active there, but just from what we’re seeing as a credit underwriter located in the US, there’s a lot of pent-up demand from US exporters and banks to do business in Argentina. Any increase is noteworthy because it comes from such a low starting point, but many of us are just happy to be able to do deals in Argentina again, and to be active in that market after so many years where it was very difficult to underwrite,” says Thomas. Before closing its lines for the country, US Exim supported the construction of the Pan-American Highway in the 1940s and 50s and the Entidad Binacional Yacyretá hydroelectric project in Corrientes in 1982.
November/December 2016 | 69
Brazil looks to China for economic boost
razil’s government has acted fast to capitalise on its relative recent certainty following Dilma Rousseff’s official destitution, with the signing of multiple commercial agreements with China. Ahead of the G20 meeting in Hangzhou in September, new President Michel Temer launched a charm offensive with China – the country largely responsible for Brazil’s growth in the past 10 years – and it worked. A number of agreements were signed, including the sale of seven Embraer aircraft to Chinese firms Colorful Yunnan and Colorful Guizhou Airlines. This was hailed as Embraer’s consolidation on the Chinese market, where it has already sold or leased 230 aircraft. “China has huge potential for us, and currently represents about 12% of Embraer’s export revenue,” the firm’s CEO, Paulo Cesar de Souza e Silva, said upon signing the deal. He says Temer’s presence at the ceremony helped reassure investors about Brazil’s newfound political stability. Among other agreements, China’s State Grid purchased 23% of the shares of CPFL
“Chinese businesses are very aware of the opportunities that investing in Latin America’s largest economy can provide.” Mauricio Munguia, Santander UK
Energia – Brazil’s third-largest electric utility company – for about US$1.83bn and Fosun bought a 50.1% stake in investment firm Rio Bravo for an undisclosed amount. This type of sale to foreign investors was widely expected in the market, as Temer faces the urgent task to get the country’s fiscal deficit under control by generating investment. “It is very likely that he will push in the short term for the privatisation of certain assets – they have made efforts to privatise at least four airports, they have announced plans to possibly privatise electricity distribution, and also sell some of the participation that Petrobras has had in certain projects,” IHS Markit head of Latin America country risk analysis and forecasting Carlos Cardenas told GTR on the day of Rousseff’s impeachment. While the stakes sold in this instance were in private
companies, these deals are a positive first step in gaining back investors’ trust and reviving the economy – while avoiding the strike-related disruption to be expected in privatisation of state entities. Among other deals, China Communications and Construction Company (CCCC) and Brazil’s WTorre agreed on a R$1.5bn investment by the latter in a new port terminal in the state of Maranhão. CCCC also announced a partnership with Banco Modal, which will act as financial advisor to the company for its infrastructure investments in Brazil. Also in Maranhão, China’s CBSteel has signed a deal with the state authority to build a new steel mill in Bacabeira, investing US$3bn and creating an estimated 5,000 jobs. Another agreement involved a US$1bn investment by Hunan Dakang
into Brazilian agriculture, four months after it bought a controlling stake in grains company Fiagril Participações. According to Brazil’s foreign minister José Serra, Chinese President Xi Jinping took advantage of the meeting with Temer to reiterate “emphatically” his trust in Brazil’s political stability and, more importantly, in its economic recovery. Mauricio Munguia, head of the Latin America desk at Santander UK, tells GTR: “China’s demand for commodities was one of the main drivers behind Brazil’s growth in the last years before this recession, so I’m not surprised that they would continue to negotiate new agreements and new ways to supply and buy from each other. “Chinese businesses are very aware of the opportunities that investing in Latin America’s largest economy can provide. These investments are medium to long-term projects which take into account the size and demands of Brazil, such as its huge middle class. Investment in infrastructure and energy projects as well as those in other sectors will continue in years to come.”
BNDES expands financing scope
he Brazilian Development Bank (BNDES) has expanded its financing criteria to include midcaps, instead of only small and medium companies (SMEs). The bank has approved new conditions for its Linha BNDES Exim Pré-embarque (meant to support the domestic production of goods destined for global markets), allowing it to grant export loans to companies with a
70 | Global Trade Review
turnover of up to R$300mn (US$92mn). Companies of this size will now be able to access BNDES financing at the bank’s longterm interest rate, currently 7.5%. The bank’s maximum participation has also been modified to reach 70% of total financing. These changes are part of BNDES’ operational policy review, which aims to improve the way the bank’s resources are used, prioritising the
Brazilian sectors and business segments most in need of financial support. The review is taking place as BNDES is under scrutiny for funding the development of Cuba’s Mariel Port under Brazil’s former President Dilma Rousseff – a loan that has not appeared to benefit Brazilian exporters. The bank appointed a new president, Maria Silvia Bastos Marques, in May 2016. She replaced Luciano Coutinho,
Maximum participation has been modified to reach 70% of financing. who was at the head of BNDES when it approved the Mariel loan, and is also under investigation for his involvement with Petrobras as board member.
Ever wonder who makes the global economy run? BNY Mellon provides a comprehensive range of investment services that encompass every stage of the investment lifecycle. This gives us the power to enhance transparency, maximize liquidity and help mitigate risks. As one of the oldest, continuously operating financial institutions in the world, BNY Mellon has endured and prospered through every economic turn and market move since our founding over 230 years ago. And today weâ€™re invested like never before, fueling the engine that drives the worldâ€™s financial markets.
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally including The Bank of New York Mellon, at 225 Liberty St, NY, NY 10286, a banking corporation organized pursuant to the laws of the State of New York, and operating in England through its branch at One Canada Square, London E14 5AL, registered in England and Wales with numbers FC005522 and BR000818. The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorized by the Prudential Regulation Authority. The Bank of New York Mellon, London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. Not all products and services are offered at all locations. This financial promotion is for general information and reference purposes only and is not intended to provide legal, tax, accounting, investment, financial or other professional advice on any matter. This financial promotion is not an offer or solicitation to buy or sell any products or services or to participate in any particular strategy.ÂŠ2016 The Bank of New York Mellon Corporation. All rights reserved.
Like a phoenix
Many doubted its ability to weather a sustained period of low oil prices, but the US shale sector has come out of the glut stronger. Melodie Michel reports.
year and a half ago, GTR published an article about how US shale companies could hope to position themselves on the global oil stage, and stressed structural issues that could affect their future. At the time, there were concerns about the high debt levels of the major players, which, combined with what was considered by many as inefficient cost models, were giving cold sweats to many investors. Sure enough, the prolonged oil glut and limited bank willingness to give companies leeway has led to a significant wave of producers going bust. Law firm Haynes & Boone has been tracking North American energy bankruptcies since January 2015, and its latest report dated September 2016 counted 58 cases this year alone, representing about US$50.4bn in cumulative debt. This is added to the 42 companies that folded last year, and despite the recent oil price recovery, the firm expects more filings by the end of 2016.
72 | Global Trade Review
Geographic differences According to Doug Getten, a partner in the securities and capital markets practice at law firm Paul Hastings, what has made the difference between success and failure is geography. “Companies that are focused on the Permian and Delaware basins have weathered this incredibly well. If you’re in Bakken shale [located mostly in North Dakota], those operators require higher oil prices for their business to work,” he tells GTR. “I’m working on a restructuring right now so I have a list of exploration and production (E&P) companies that have filed for bankruptcy over the course of the last year, and at the bottom you have Triangle Petroleum, which is Bakken shale, Sandridge and Breitburn are Mid-Continent. It depends on where you are, so when you think about US shale you have to look at the different subsets of the different basins in the country.” According to him, Eagle Ford and Northern Louisiana shale should recover along with oil prices,
which bodes well for some of the local operators that filed for bankruptcy earlier in the year and are now emerging from the episode with a better-balanced cost structure – think Goodrich Petroleum. While not all companies have survived, those that have managed to weather the crisis have had to change their financing practices. Paul Hastings, for example, has worked on a lot of liability management transactions, where, Getten explains, a company may try to capitalise on the trading prices of its public debt, trading at less than par in exchange for a second security. “We worked on rescue capital deals for public companies where alternative lenders would go in and lend money on a second-lien basis. Midstates Petroleum did a debt-for-equity swap as part of its bankruptcy. The market was previously encouraging most upstream E&P companies to take on debt versus selling equity to finance their activities, because the market generally doesn’t want to see dilution. Many companies had a lot of debt and that was a lot of the uncertainty, but there have been many liability management transactions that have gone on to get balance sheets right-sized and restructured,” he says. Thomas Pugh, a commodities analyst at Capital Economics, is impressed by the way the US shale sector has handled the crisis. “I think it’s been surprisingly resilient. I don’t think anybody expected them to be able to cut costs and raise efficiency as dramatically as they have done – that’s been the most impressive thing. Every month, efficiency increases, costs are cut down. Production has fallen, but by nowhere near what you would have anticipated given the fall in prices and in drilling rigs. It really is a story of how in desperate times, people will find a way to adapt,” he tells GTR.
The OPEC effect A turning point in the shale sector’s recovery was the September 2016 OPEC meeting in Algiers, during which the oil ministers of the various member countries announced an intention to cut output in an effort to revive prices. The news sent oil prices over the US$50-a-barrel threshold, and shale producers lost no time in reopening their taps: oil field services firm Baker Hughes counted 432 US oil rigs on October 14, up from 418 on September 23 (before the announcement). These companies were now keeping the oil price around the US$50 mark at the time of writing, preventing it from rising along with the hype around the November OPEC meeting, where a plan on how to cut output was expected to be announced. “The minute the prices rose above US$50, there were reports of a surge in hedging by shale producers for the rest of this year and next year. Even at US$50, plenty of them will be quite profitable. There’s a lag of about three months to get production up and running, so OPEC might enjoy a small window of higher prices, but US production is consistently increasing,” Pugh explains. Shale companies are not the only ones that are bullish about the sector’s prospects: after a few years of very low activities, investors are once again excited by the opportunity. In October, Denver-based Extraction
Oil & Gas was the first energy company to run an initial public offering (IPO) in two years and the results were outstanding: the firm sold 33.3 million shares for US$19 apiece. The shares ended their first day of trading up 15% at US$21.85 on October 12, valuing the company at about US$2.4bn. The IPO sent a message to the market, and is set to be followed by many more. “Right now a lot of companies are in dual-track processes, where you have a private company that’s big enough and has scale to go public, and it’s a question of whether they choose to access the capital market and execute an IPO, or sell to another public company through an M&A deal,” says Getten.
“Production has fallen, but by nowhere near what you would have anticipated given the fall in prices and in drilling rigs.” Thomas Pugh, Capital Economics
He adds: “I think there’s a lot of companies that aren’t just prepared for an IPO but have taken the affirmative steps of confidentially filing for IPO with the Securities and Exchange Commission as an emerging growth company. I think there’s probably a pretty long list lining up to try to execute their IPO offerings in Q1 2017.” Going public would bring many benefits to shale companies that have to deal with oil price volatility: instead of being limited to bank or alternative lender debt, they could access the high-yield bond and equity capital markets. “You have more tools in your toolbox as a CFO at a company that’s public,” says Getten. According to that logic, the more shale companies go public, the more resilient the sector will be in the future. This could give shale producers more weight on the global oil scene. In a Forbes column in October, energy consultant David Blackmon wrote that the shale “cartel” was the only one that mattered anymore: “Regardless of what OPEC does or does not ultimately agree to at its next formal gathering in late November, the mid and long-term impact on the global price picture for crude oil will depend almost entirely on how the US shale cartel responds.” According to Pugh, shale producers will always be different from OPEC as they are not homogeneous and are purely interested in making a profit, “whereas OPEC [members] will do all sorts of shenanigans to maximise their own market share into their rivals whilst talking up the market”. But he concedes that if most shale companies continue to increase output for a prolonged period, the resulting downward pressure on price could lead to another power play with OPEC, where OPEC could even be forced to cut output the way it did during the oil price crisis of the 1980s. Whether that happens or not, the shale market is set to become more significant.
November/December 2016 | 73
l l a w t a e e r c g n s e ’ i l o i c s i e x r e f o M Despite a tough year, Mexico remains one of the most promising economies in Latin America. Melodie Michel travels to Mexico City to find out why.
s this magazine went to press, the Mexican peso was dangerously close to the 20-tothe-dollar mark, causing concern in the business community. The country’s current account deficit was the largest since 1999 and rating agencies had cut growth forecasts from around 2.4% to 2% for 2016. Most worryingly, there were rumours that a credit rating downgrade was on the cards if things didn’t improve. Yet at GTR’s Mexico Trade and Export Finance Conference at the end of October, the mood was optimistic. “Latin America is adjusting to a new reality. The US is not growing as much, and US production is suffering a recession. For Latin America, especially countries like Brazil, the adjustment has been quite sudden. Mexico, on the other hand, has been adjusting in a more orderly way. Amongst bad news, this should be considered a good thing,” said Carlos Capistran,
74 | Global Trade Review
chief Mexico economist at Bank of America Merrill Lynch (BofAML). To understand the reason why investors are not panicking about Mexico’s apparent troubles, we need to look at the root of these issues. For example, the devaluation of the Mexican peso had a lot to do with the presidential election campaign in the US. In fact, at the time of writing, it had become an indicator of the likelihood of a Donald Trump presidency: when Trump did well in polls or at debates, the peso went down; when he lost popularity, it recovered. On the back of the final presidential debate on October 10, the peso reached a peak of 18.455 against the US dollar. A Trump presidency would be terrible news for the Mexican economy, but as the election result should be announced before many of you read this, and because Hillary Clinton enjoyed a double-digit lead in the polls
ity, e volatil m o s e e re ect to s tion the c le “We exp e S r the U inty but afte uncerta h c u m as won’t be st year.” la as in the S BC doza , H Luis Fern
at the time of writing, things should be looking up for the currency. Speaking to GTR on the sidelines of the Mexico event, HSBC’s Mexico product head of global trade and receivables finance, Luis Fernando Mendoza, said: “The clients have been a lot more aware and concerned about our exchange rates, so they come to us a lot asking for support and advice. We’ve been very careful on reviewing how the clients do business in terms of which currency they use to sell and to collect – that’s something that wasn’t so critical a few years ago. “We expect to see some volatility, but after the US election there won’t be as much uncertainty as in the last year. We’re now in a good position to start thinking ahead and start regaining momentum in world trade.” Another issue is the current account deficit, which, according to Arnulfo Rodriguez, senior economist at BBVA Bancomer, has been made worse by the low oil prices of the last two years. “Foreign direct investment (FDI) in oil could finance about 50% of the current account deficit,” he said at the conference, and looking at recent news, this forecast may well come true.
The Mexican government is due to auction 10 deepwater drilling areas on December 5, hoping to raise US$44bn in its first-ever attempt to open the market to international oil companies. “Of course, the energy reform [enacted in 2013] was affected by the oil price and the reaction of foreign investors was to put on hold many of their investments. However, Mexico has very important deepwater reserves that are going to be important in the future,” Mauricio Munguia, head of the Latin America desk at Santander UK, tells GTR. In August, Exxon Mobil, Chevron and Hess agreed to bid together for this auction, against no fewer than 18 other oil majors including Shell, BP, Total and Mexico’s own Pemex. “The appetite for the reserves is there and this bid proves that foreign companies want to participate,” Munguia adds. Moreover, oil prices are expected to recover in the coming months and years – BofAML’s Capistran placed it at US$61 per barrel in 2017 – which will also be very helpful to Mexico. And as shale takes a more important spot on the global oil stage (see page 74), Mexico is expected to capitalise on its northern reserves, thought to be extensions of the Eagle Ford basin in South Texas. Mexico’s energy secretary Pedro Joaquín Coldwell said in a speech in September that the government could begin shale auctions any time after March 2017, creating another source of FDI for the country. The state of the oil sector is not the only thing affecting the current account deficit: the country is also attempting to strengthen its public finances. The 2017 budget was announced by finance minister José Antonio Meade – who was appointed when his predecessor, Luis Videgaray, resigned in protest against President Peña Nieto’s soft handling of Donald Trump’s visit in September – at the start of October. It includes cuts of almost Ps240bn (US$12.9bn), adding to the Ps169bn expected to be cut in 2016, and Ps124bn saved in 2015. According to Meade, the cuts will include scaling back Pemex’s output to a 36-year low of 1.925 million barrels a day, as well as slashing the number of government personnel and reducing government operating costs by about a fifth.
Manufacturing strength Mexico’s economic promise is best seen in foreign investors’ faith in its manufacturing sector. Despite continued drops in exports since the start of 2016 (up to 10% year on year in July), investment in the automobile industry has made countless headlines. In September, Audi inaugurated a high-tech US$1.3bn Q5 crossover factory in San José Chiapa, with a production capacity of 150,000 cars a year. BMW is investing US$1bn into a new plant in San Luis Potosi, which will have a similar capacity. Mercedes-Benz is expected to set up shop in Aguascalientes with a US$1.4bn investment. Ford caused controversy (and fuelled the Trump campaign) in September by announcing that it would move all its small car production to Mexico within the
November/December 2016 | 75
next two to three years – though it quickly added that the move would not mean job cuts in the US. Foreign automakers have invested at least US$13.3bn in Mexico since 2010, more than half of which has come from outside North America, according to the Centre for Automotive Research. In an on-stage interview with GTR at the Mexico conference, Luis Enrique Zavala, vice-president of the National Association of Importers and Exporters of the Mexican Republic (ANIERM), cited a young workforce, 3,000km of border with one of the largest world consumer and free trade agreements (FTAs) as reasons for this appeal. Indeed, at a time when FTAs are at the centre of widespread criticism, some are making the argument that it is Mexico’s multiplicity of agreements that makes it such an attractive manufacturing destination. In an October 19 CNBC interview, Bernard Swiecki, director of the automotive communities partnership at the Centre for Automotive Research, said: “That’s what gets lost in the narrative. FTAs are driving BMW and Audi, but they’re not FTAs with us [the US].’’ Of course, labour costs are playing an important role in Mexico’s appeal: the average Mexican autoworker earns the equivalent of US$8 to US$10 an hour. According to the Centre for Automotive Research, average labour costs in the Detroit Three (General Motors, Ford and Fiat Chrysler Automobiles) range between US$48 and US$58 an hour. But salaries rise, and the recent trend towards “re-shoring” from countries like China back to a company’s home country is evidence that low-cost labour alone is not enough to invest in a country in the long term. What Mexico has that others don’t is – once again – its proximity to the US, and more particularly, its research and development (R&D) capacities. Chris Camacho, the president of the Greater Phoenix Economic Council (GPEC), speaks to GTR about the recent joint efforts of his organisation, the City of Phoenix and Pro-Mexico (the country’s tourism and investment promotion vehicle) to encourage companies to set up shop in the ArizonaSonoma region. “Arizona has a very strong competency in R&D and engineering, and obviously the manufacturing sector both in Arizona and Mexico are very strong, mostly around electronics, airspace and defence. We’re jointly targeting US companies that have gone abroad for cost optimisation reasons and showing them the value proposition for them to re-shore with that dual approach of Mexico and Arizona,” he explains. He says rising worldwide transportation costs and increasing labour costs in developing countries have contributed to the renewed appeal of the region for manufacturers. In fact, the organisations expect to announce the first re-shoring success story before the end of 2016. “What I foresee is that you’re going to see continued opportunities in Sonoma in particular to create one of the world’s most impactful mega-regions. This unique relationship will continue to develop. We’re seeing companies that want to do R&D in the auto sector in the
76 | Global Trade Review
US and look for manufacturing opportunities in Mexico where they can lower their operating costs. That’s a good partnership going forward,” Camacho adds. Mexico has also been doing a lot to diversify export markets – a smart move, judging by the impact of the US election’s campaign promises on the country’s economy. “When you share a border with one of the largest economies in the world, there are benefits. However, Mexico has been very active in finding new trade partners. It has been diversifying in terms of sectors, so as we move to different sectors we are also developing new trade blocs such as the Pacific Alliance [a bloc including Mexico, Chile, Colombia and Peru],” Munguia says.
“We’re seeing companies that want to do R&D in the auto sector in the US and look for manufacturing opportunities in Mexico where they can lower their operating costs.” Chris Camacho, GPEC
Banking sector Because of its economic diversity and resilience, particularly compared to more commodity-led and China-dependent Latin American countries such as Brazil and Chile, Mexico has continued to attract banking investment at a time when most global banks have exited much of the region. Between 2006 and 2015 Citi sold 26 of its 50 foreign consumer banking units, including Brazil, Argentina and Colombia, yet it just announced a US$1bn investment in its Mexico subsidiary, recently rebranded CitiBanamex. Acquired in 2001, the bank holds a 16% share of total deposits in the country and contributes about 10% of Citi’s revenues, more than any other of its foreign retail franchises. HSBC has followed a similar path: having exited most of Latin America (most recently selling its Brazil subsidiary to Bradesco), the bank recently announced a US$290mn investment in its Mexican subsidiary, signalling that it intends to remain in the market. Though it’s impossible to predict just how bad a Trump presidency would be for the Mexican economy, a stress test conducted in October to evaluate the banking sector’s ability to weather such an event showed positive results. “These exercises showed that the banking sector maintains adequate levels of capital and liquidity to face adverse scenarios,” concluded the Financial System Stability Board (CESF), which includes representatives from the finance ministry, the Bank of Mexico and the banking regulator CNBV. Mexico managed to stay the course of growth and stability in the midst of heightened political risk and regional recession, and now that a recovery is expected in both, it is poised to reap the benefits of its successful strategy.
Latin America Trade Finance Conference 2017 São Paulo, Brazil | Tivoli Mofarrej April 27, 2017
Attracting an ever growing number and cross section of delegates, GTR’s Latin America Trade Finance Conference returns for its seventh year on April 27. Offering a stimulating environment for international business leaders and trade finance specialists to assess the current challenges and opportunities associated with the Brazilian and other Latin American economies, 2017’s event provides an ideal communication and information platform for attendees to build new relationships and unite towards a common goal.
“Amazing discussions and a great opportunity for networking. Amazing event!” R de Mendoca Gabriel, Santander
“GTR events are a great way to meet people from the whole market, whom we would not easily meet otherwise.” R Verlyck, Garant Insurance
“Excellent opportunity to get and give information and share concerns about the region.”
2016’s vital statistics
Sectors attended in 2016
Corporates & traders Banks & financiers Govt orgs & public bodies Insurers & risk managers Lawyers Consultants & accountants Non-bank financiers Solution providers Media ECAs & multilaterals Other
42% 17% 9% 8% 8% 5% 3% 3% 2% 2% 1%
A Rangal, Camoplast
For more information please contact Judith Mülhausen at email@example.com or visit www.gtreview.com
Dubai, United Arab Emirates
Your gateway to Africa At FBN Bank (UK), we help businesses participate in the African growth story. Through our innovative commodity trade ﬁnance solutions, personalised service and in-depth expertise on Africa, we help businesses capitalise on the opportunities in this dynamic and vibrant region. For more information on how FBN Bank (UK) Limited can help your commodity ﬁnance needs please contact:
Ayodipo Ogunmoyela Deputy Director Structured Trade Commodity Finance firstname.lastname@example.org T: +971 2 644 5621 M: +971 56 641 9313
Ebenezer Amarh Oﬃcer Structured Trade Commodity Finance email@example.com T: +44 20 3595 1122 M: +44 7834 523 801
Sam West Business Development Manager Structured Trade Commodity Finance firstname.lastname@example.org T: +44 20 7920 4943 M: +44 7880 195 553
Babajide Bode-Harrison Assistant Director Structured Trade Commodity Finance email@example.com T: +971 2 644 5621 M: +971 56 941 9733
Mayen Opute Oﬃcer Structured Trade Commodity Finance firstname.lastname@example.org T: +44 20 7826 4689 M: +44 7746 257 667
Olivier Noel Head Paris Branch email@example.com T: +331 5353 2041 M: +336 5973 9165
Phil Wakeﬁeld Head of Distribution Structured Trade Commodity Finance p.wakeﬁeld@fbnbank.co.uk T: +44 20 7826 3028 M: +44 7971 953 923
www.fbnbank.co.uk FBN Bank (UK) Limited, 28 Finsbury Circus, London EC2M 7DT. Tel: 0207 920 4920 Fax: 0207 920 4970
Iran opens up for foreign oil bids
ran is inviting foreign companies to bid for oil and gas projects for the first time since the lifting of international sanctions against the country. The announcement comes on the heels of the US approval of aircraft sales to Iran and new sanctions guidelines that could boost Iran’s ability to attract foreign investment. The state-run National Iranian Oil Company (NIOC) announced in October that it will begin accepting applications to pre-qualify bidders for a number of upstream oil and gas projects. Iran is particularly looking for foreign companies to bring capital, technology transfer and project management expertise to the country, according to Elham Hassanzadeh, managing director of Iran-focused energy consultancy Energy Pioneers. Nevertheless, Hassanzadeh tells GTR that it is unlikely that NIOC will sign many contracts with foreign companies in the next six to nine months. “Mediumterm, there could be some contracts for projects prioritised by NIOC,” she says. “The international oil
market conditions are not very favourable and one should add this hurdle to international oil companies’ (IOCs) concerns. Mobilising the right amount and structure of funds could be very challenging.” She adds that to be qualified, IOCs are required to pick a local partner from a list of qualified Iranian exploration and production companies. Iran’s tender announcement came just after the US treasury department released new guidelines for dealing with Iran, an update that could be seen as a relaxation of the rules on foreigners trading in US dollars with the country. The treasury department said its new guidance, released on October 10, does not represent additional sanctions relief, but is intended to clarify the scope of the sanctions lifting and those that remain in place. Yet, according to Hassanzadeh, the clarifications could have an important impact on investors’ willingness to engage in business with Iran. She says the “overall environment is very positive” and that she has
received positive feedback from investors since the update. The new guidelines followed the US clearance of aircraft sales to Iran for Boeing and Airbus in September, which was seen as the first green light companies around the world had been waiting for since the lifting of sanctions. But the lack of information about the financing of such sales could signal slow progress for the reopening of transactions with Iran. “These licences contain strict conditions to ensure that the planes will be used exclusively for commercial passenger use and cannot be resold or transferred to a designated entity,” a US treasury spokesperson tells GTR. But pressed on the “strict conditions” of the licences, and whether they include clauses on the financing of such deals, the treasury declined to comment. Likewise, Boeing refused to give any information about the financing of these exports. Meanwhile, Iran continues its work to revive and establish links with foreign banks and export credit agencies, and to recover its funds globally. Iran’s export credit agency
The announcement comes on the heels of the US approval of aircraft sales to Iran and new sanctions guidelines that could boost Iran’s ability to attract foreign investment.
Export Guarantee Fund of Iran (EGFI) announced in September it had signed an agreement with the Export Development Bank of Iran and Banco Exterior de Cuba to restructure Cuba’s debt to Iran. The deal, in which Cuba commits to repay its debt by 2019, forms part of a wider strategy to strengthen ties between the two countries. EGFI’s deputy CEO Arash Shahraini tells GTR that the agency is working to pave the way for the presence of more Iranian companies in Cuba, especially those active in the export of techno-engineering services who are looking to participate in infrastructure projects.
Food trade industry group launches in Dubai
ubai Multi Commodities Centre (DMCC) has launched a new industry group, aimed at growing the country’s food trade industry and strengthening the region as a hub for global trade. DMCC’s Food Trade Group (FTG) will work as a platform bringing together companies across the global value chain, from food traders and producers to service providers and financiers. Ahead of the launch in
October, FTG signed up more than 50 trading organisations, including Olam Group, Hakan Agro and Asia & Africa General Trading. “Through the group we are trying to build trust and collaboration in the industry,” DMCC’s director of commodity services, Franco Bosoni, tells GTR. FTG will, among other things, provide a mediation service to resolve disputes between food traders
and financiers, as well as business development and networking events. It will also give discounted access to training, insurance and other professional and financial services. Another element of FTG will be to work with financial institutions and financiers to expose companies to greater opportunities in terms of accessing trade finance, Bosoni says. DMCC, a governmentowned organisation to
“Through the group we are trying to build trust and collaboration in the industry.” Franco Bosoni, DMCC
promote trade, has over 12,700 registered member companies, of which 8% are engaged in the food industry.
November/December 2016 | 79
Beyond the barrels Like its energy-rich neighbours, Algeria’s efforts to diversify its economy have been stunted. Sofia Lotto Persio reports.
t had been another turbulent year for OPEC when, in September, Algeria took the reins and hosted a meeting for member nations in its capital Algiers. It was there that a production cap was finally agreed, a long-awaited breakthrough in the effort to stabilise the price of oil. Based on the 2017 state budget, around US$50 per barrel is the oil price Algeria needs to ensure stability. The budget, approved in October, is one designed to steady Algeria’s finances. While exact details of the budget had not been released at the time of writing, it should see a 14% cut in government spending, the introduction of new taxes and a 7% increase in value added tax (VAT). The most significant measure would allow foreign investors to buy controlling stakes in state banks, revising a law that requires the state to retain 51% of shares in partnerships with foreign firms. This
80 | Global Trade Review
would mean a seismic change in a country whose economy has, until now, relied predominantly on state control and oil export revenues.
An oil-dependent economy Oil and gas accounts for 95% of Algeria’s export revenues and 60% of the state budget. Until the fall in commodity prices began in 2014, Algeria was awash with liquidity – so much so that not only did it pay back its loans to the International Monetary Fund (IMF) in 2007, it actually started lending money to the organisation too. “Until recently, financing was not an issue for Algeria. With the decrease in the price of oil, the situation is becoming more difficult,” says Rachid Sekak, a consultant and the former CEO of HSBC in Algeria. “The country will have to diversify from hydrocarbons, because it is
too dependent on their price and this is not sustainable,” he tells GTR. The fall in commodity prices has forced the government to review its spending. Infrastructure projects have been delayed and economic diversification has slowly become not only desirable, but necessary. “They are very keen to diversify the economy; they know they have to move away from oil and gas,” says Lady Olga Maitland, chairman of the Algeria British Business Council. Oil and gas will remain an important asset, even at a lower price. “They need to produce more to compensate for the low prices, hence the reduction in revenues,” says Khaled Mamour, UK representative for the Algerian Forum de Chefs d’Entreprise – an organisation promoting the interests of local entrepreneurs – and business development director at energy consultancy Amec Foster Wheeler.
implementation of renewable energy projects in Algeria. The first project will be the construction of a 10MW photovoltaic plant, where the two companies aim to start activities before the end of 2016. Eni’s CEO, Claudio Descalzi, emphasises the significance of the deal: “In the early 1970s, Eni was the first foreign company to sign an agreement with the Algerian state, for the construction of the Transmed gas pipeline, and, in 1987, the first oil and gas company to sign an upstream contract in Algeria. Today Eni is the first oil and gas company to reach a strategic agreement in the field of solar energy in Algeria, a country with an important potential.”
Associates in September, Jeremy Keenan, a professor at the School of Oriental and African Studies (SOAS) in London and a recognised expert on the Sahara-Sahel region and Algeria, said: “Algeria does not need cash, they need more than that, something more sophisticated. They want partnerships. This reduces the risk,” he said.
Banking sector limitations Algeria’s financial environment needs improvement. “Anything that will lead to import substitution is good for the country and an opportunity for investors. But for sure, Algeria needs to change the business climate to generate investment from local and international investors.
“Algeria needs to change the business climate to generate investment. The financial sector in Algeria is almost non-existent.” Rachid Sekak, consultant
He says the sector needs investment in new field exploration, to create partnerships and share costs and risks. “They already have reservoirs, but they need to replenish them and they need new discoveries. They need to explore more,” he says. Recent news concerning Sonatrach, the state-owned petroleum company, suggests it is moving in that direction, having signed a memorandum of understanding with Pertamina, the Indonesian stateowned oil and gas company, to join forces in increasing production. Additionally, the Russian energy minister Alexander Novak announced in September that the two countries are co-operating on energy.
The diversification imperative One of Sonatrach’s latest deals is evidence that energy diversification is possible: the company has started working with Italian oil and gas giant Eni on the
Algeria has some ambitious targets for renewables, aiming to create 22GW of clean energy capacity by 2035. This includes wind energy, but it is solar power that offers the greatest opportunities. Gille Bonafi, a consultant at the UN’s Intergovernmental Committee of Experts, says that Algeria has “an extraordinary potential” that could see it becoming a top exporter of solar-based power to Europe and Africa. Another area which the government is targeting for diversification is agribusiness, as the country is dependent on food imports to meet domestic demand. In 2014, the government announced plans to spend AD300bn (roughly €2.8bn) each year on agriculture as part of the public investment programme to 2019. The parched Algerian land requires increased irrigation, use of fertilisers and new farming techniques. This, too, is an attractive area for foreign investors. Last year, the American International Agricultural Group and the Groupe Lacheb signed a US$100mn joint venture agreement to provide the advanced agricultural technologies needed to integrate US production models in Algeria. But diversification will take more than just investment. Speaking at a briefing on Algeria organised by Menas
The financial sector in Algeria is almost non-existent,” says Sekak. Algeria ranks at the lower end of the World Bank’s Doing Business ranking, even with respect to the Mena region. Banks operate under strict regulations, the local stock market is scarcely populated and credit card use is very limited. Foreign banks in the country are not allowed to bank the local population and can only offer corporate services, one of them being trade finance. According to Sekak, trade finance has been a lucrative business for banks in the country. “Trade finance was some kind of free lunch because all imports had to be financed by documentary trade,” he tells GTR. But trade finance too has been affected by the fall in oil prices and banks will need to look for alternative revenues. “They need to diversify out of trade finance and manage the liquidity concerns,” he advises. In its latest annual report on the country, the Oxford Business Group expects Islamic banking to grow despite the lack of appropriate legal framework. Several banks have launched their own shariah-compliant products in the past year, and according to the study, while about half of Islamic bank Al Baraka’s deposits in Algeria come from retail clients, demand is also strong from corporate customers, particularly SMEs.
November/December 2016 | 81
Algeria’s hesitation in relaxing banking laws and rules on foreign investment is understandable, considering the change that more financial independence would represent for an economy that has been tightly controlled. “They will get there, they are quite sincere about moving on, but it is just very slow,” says Maitland.
President Abdelaziz Bouteflika has led the country since 1999, facilitating the process of national reconciliation after the civil war that pitted government against Islamists in the 1990s and is estimated to have killed up to 200,000 people. He was most recently re-elected for a fourth term in 2014, although the voter turnout was
“Turning Algeria around could take 10 years. The timeframe depends on Bouteflika’s departure.” Jeremy Keenan, SOAS
Whether the government will be successful in achieving the targets it has set itself to diversify the economy remains to be seen, particularly as lower oil and gas revenues could make it difficult to direct spending towards that goal, and infighting is delaying key decisions on the foreign investment rule.
Regime uncertainties Keenan claims the diversification policy is being implemented, but in the worst possible conditions, as the state of the economy requires the imposition of austerity measures to rein in government spending. “This is tough medicine,” he says, adding that “the fear of social unrest is real”. But Keenan concedes there are also reasons to remain optimistic about the country’s prospects of stability. “The sentiment is moving in the right direction, and there is huge international pressure on the government,” he says.
only 51.7% and he lost almost 5 million votes in comparison to the 2009 election. Bouteflika is almost 80 years old. He suffered a stroke in 2013, did not personally campaign and turned up to vote in a wheelchair. Rumours about his ailing health concern analysts, who anticipate a political struggle for his succession. Yet, for those who deal with Algeria on a regular basis, the country’s experience of the civil war will prevent further infighting. “They have no appetite to return to a civil war. The system around the presidency is very carefully structured. In the short term, it will be managed. They have a great fear of instability,” says Maitland. Sekak agrees: “Instability is not yet on the table. The country is still quite rich, but the money will have to go to the poor and only to the poor. If that is the case I don’t see any social unrest in the next five years.” Despite sharing a border with war-torn Libya, the possibility that the conflict
he spread of corruption in Algeria is a key issue in the economic crisis affecting the country – even more so than the fall in the oil price, according to some. “That crisis was really self-made as a result of the regime insisting on maintaining a rentier economy and corruption,” said professor Jeremy Keenan, of the School of Oriental and African Studies (SOAS) in London. In Transparency International’s 2015 Corruption Perception Index, Algeria was ranked right in the middle: 88th out of 167 countries, a position shared with Indonesia and Egypt. The state-owned oil company Sonatrach has been involved in lawsuits and corruption scandals. In February, an Algerian court jailed six former Sonatrach employees, including a former vice-president and an ex-state
82 | Global Trade Review
bank chief, in a corruption case involving equipment supplies. As part of the same trial, Saipem Contracting Algérie, part of Italy’s Saipem group, was fined €34,000 for inflating prices on a gas pipeline contract and “taking advantage of the authority or influence of [its] representatives”. The fine related to a bid procedure for a US$580mn deal struck with Sonatrach in 2009. In July, Total and Repsol made an arbitration referral against Sonatrach over the introduction of a “tax on exceptional profits”. President Abdelaziz Bouteflika appointed a national board for the prevention of, and fight against, corruption in September, but it is unclear yet whether the body will be effective in denouncing and preventing corruption at all levels of society.
could spill over to Algeria seems remote. A Menas Associate bulletin on the country says the risk of IS fighters arriving in the country is low: “We do not think these IS elements will make their way towards the Algerian border.” Rumours about political instability are, according to Mamour, exaggerated. “There is a deficit of communication and information and because of that it fuels all sorts of rumours,” he tells GTR. According to him, what can be trusted is that, slowly but surely, the reforms will happen. “Changes are happening and they make sense,” he adds.
Untapped potential While the political processes involved in reforming the country have been slow, those who best know the business environment are all in agreement: Algeria offers huge opportunities for those who are willing to commit for the long term. According to Keenan, in a decade the Maghreb may become one of the few major growth regions in the world. “The growth potential for the region is absolutely staggering,” he said in his speech. He highlighted the fact that while intra-regional trade is still pretty minimal, especially between Morocco and Algeria, there have been signs of recent progress. This would add to the manufacturing and tourism potential of the country and region. What needs to happen, he said, is a cultural and regime change: “Turning Algeria around could take 10 years. The timeframe depends on Bouteflika’s departure.” Maitland seems positive about Algeria’s prospects. “Algeria has been overlooked; it is time to make amends. It has made a lot of progress. Even today, with the low oil price, it is interesting to see how the private sector has really developed and moved on,” she says. But she warns that patience is of the essence, as those who go into the country cannot expect quick returns. “There are companies who want to go in, get an incredible amount of support, and then they go on retreat because there are investors who say they want results now, they do not want to wait five years,” she says. Mamour also shares the optimism and invites people interested in the country’s opportunities to go see it for themselves: “Take time to go there and know the people and the opportunities will be huge.”
SPECIALIST NOT STANDARD Arthur J. Gallagher, a market leader in the provision of structured credit and political risk insurance solutions to the Trade and Export Finance community. Experienced, dedicated insurance professionals with offices in London, New York, Singapore, Stockholm, Sydney and Perth. To find out more, contact: Mark Gubbins London, United Kingdom Tel: +44 (0)20 3425 3194 firstname.lastname@example.org
Gary McNally Sydney, Australia Tel: +61 (0) 2 9242 2087 email@example.com
Matthew Solley London, United Kingdom Tel: +44 (0)20 7204 6175 firstname.lastname@example.org
Racheal Tumelty Perth, Australia Tel +61 (0)8 6228 1142 email@example.com
David Evans London, United Kingdom Tel: +44 (0)20 7204 6156 firstname.lastname@example.org
Fredrik Enderlein (Brim) Stockholm, Sweden Tel +468 441 8988 email@example.com
Sarah Gulston Singapore Tel: +65 6422 7439 firstname.lastname@example.org
Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 1193013. www.ajginternational.com
Nordic Region Trade & Export Finance Conference 2016
Turkey Trade & Export Finance Conference 2017
Russia & CIS Trade & Export Finance Conference 2017
November 29, 2016 Stockholm, Sweden
March 21, 2017 Istanbul, Turkey
April 12, 2017 Moscow, Russia
For more information please contact Grant Naughton at email@example.com or visit www.gtreview.com
Commodity trade finance survey
ITFA Young Professionals roundtable
CETA comes back from near collapse
he European Union’s Comprehensive Economic and Trade Agreement (CETA) with Canada was saved at the eleventh hour after the Wallonia region of Belgium, having previously deadlocked the deal, came to a compromise with its federal government allowing it to sign up to the pact. However, the agreement came too late for an official signing ceremony between the EU and Canada which had been scheduled for October 28. At the time of going to press, details of the deal struck with Wallonia, which will now have to be agreed by the other 27 member states, were not yet disclosed. CETA will now enter a process of formal ratification which will take between two and four years. Wallonia had voted against CETA because of fears that local workers will be laid off if the agreement leads to cheaper industrial imports. Opposition
Justin Trudeau, Canadian prime minister
“We are in the beginning of a change in international relations.” Martin Schulz, European Parliament
to the deal, and similar ones like the Transatlantic Trade and Investment Partnership (TTIP), has been growing among public and professional bodies, who argue that these deals will hinder standards on products and markets as well as on climate policies adopted in the EU. Commenting on the agreement with Wallonia, president of the European Parliament, Martin Schulz, says: “The Wallonia
government is representing a very small part of European citizens, but the worries they express are also worries in other countries in the EU. We answered those concerns and I feel citizens felt they were taken seriously – and that’s progress.” CETA negotiations are being watched closely, as they are considered by many to indicate not only the likely processes and outcomes of similar trade deals (namely
TTIP and future Brexit negotiations with the UK), but the credibility of the EU itself. Canadian prime minister Justin Trudeau posed the question “if Europe is unable to sign a progressive trade agreement with a country like Canada, then with whom does Europe think it could do business with in this postBrexit situation when there are many questions about Europe’s usefulness”? Other commentators have highlighted that the stalls from sub-national level, while slowing down agreements, should be welcomed, as this will lead to a more robust and legitimate economic globalisation. “We are in the beginning of a change in international relations and if we need a little more time, especially after Brexit, to regain trusts of citizens than you should take that time – and that’s exactly what happened,” says Schulz.
EC hits Apple with €13bn tax bill
he European Commission (EC) has made a landmark ruling that US tech giant Apple received up to €13bn of illegal tax benefits from Ireland, which it says the country must now recover. The move has prompted angry responses from the US, which claims the ruling could jeopardise its trade relations with the European Union, while in Europe some are touting the idea of the UK taking Ireland’s place following Brexit and its potential independence from the bloc’s rules. The commission, which launched an in-depth investigation into Apple in 2014, says it has concluded
“The heart of the issue is how intellectual property is treated by the tax authorities and what this means for where profits are created and therefore taxable.” Gregor Irwin, Global Counsel
that two tax rulings issued by Ireland to Apple have “substantially and artificially” lowered the tax paid by the company in the country since 1991. This “sweetheart” treatment of Apple gives it a significant advantage over other businesses that are subject to the same national taxation rules, making it illegal under EU state aid rules.
Apple’s preferential treatment meant it paid a 1% corporate tax rate on profits in 2003, which dropped to as low as 0.005% in 2014. “Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” says head of the investigation and commissioner in charge of competition policy, Margrethe Vestager.
The commission can order recovery of illegal state aid for a 10-year period preceding its first request for information in 2013, and says Ireland must now recover the unpaid taxes for the years 2003 to 2014 of up to €13bn, plus interest. “The EC ruling is more punitive than expected. The case has been brought under competition law, but the heart of the issue is how intellectual property is treated by the tax authorities and what this means for where profits are created and therefore taxable,” chief economist at Global Counsel Gregor Irwin, tells GTR. Apple and Ireland have strongly contested the ruling and pledged to appeal the decision.
November/December 2016 | 85
Poland pulls plug on Airbus
diplomatic spat between France and Poland has resulted following the latter’s decision to hand over a US$3.5bn helicopter deal that was mooted to be in the bag for France’s Airbus to rival US company Lockheed Martin. In April 2015, Poland selected Airbus Helicopters’ bid to modernise its helicopter fleet with 50 new H225M caracal multi-roles. The provisional deal was signed by the former government and opposed by the current ruling party, Law and Justice (PiS). In October, new prime minister Beata Szydło, who has been in power since October 2015, scrapped the deal and awarded the contract to Lockheed Martin for black hawks instead, citing poor value in terms of offset work for locals. France and Airbus have reacted with fury. The French government has said it will review its defense relationship with Poland, and François Hollande cancelled a presidential visit to Warsaw that was scheduled for October 13.
EBRD invests €25mn in Romania’s aerospace industry
“Although compensation of a value added tax through offset is not standard practice, Airbus Helicopters agreed to compensate this gross value.” Airbus
Meanwhile, Airbus has written an open letter to the Polish prime minister and threatened to seek “remedies” for misleading processes and allegations regarding its bid. The company argues that its offer would have generated more value in Poland than the revenues generated for Airbus Helicopters through the contract. It says the project would have led to the creation of 3,800 jobs in Lodz, Radom and Deblin. Airbus says it offered offset contract above the net value of the supply contract for the 50 helicopters, which was valued at PLN10.8bn. “The ministry of development required Airbus Helicopters not only to compensate this [net] value through offset, but also to
compensate an additional 23% corresponding to Polish VAT, to stay in Poland, leading to a total offset value of PLN13.4bn,” says the letter. “Although compensation of a value added tax through offset is not standard practice, Airbus Helicopters agreed to compensate this gross value.” Poland says that Lockheed and Italy’s Leonardo, which also lost out to Airbus in the original bidding, will now be asked to supply helicopters from their existing plants in Poland. Speaking during a visit to a helicopter repair factory following the announcement, Szydło said the award had previously ignored the capabilities of Lockheed’s Sikorsky plant in Mielec and Leonardo’s Swidnik facility.
Trio in line for EU free trade
eorgia, Moldova and Ukraine have signed association agreements with the European Union in a move that foresees a free trade area between the countries and the bloc. The agreements are expected to lead to the development of a Deep and Comprehensive Free Trade Area (DCFTA) between each country and the EU, says the European Bank for Reconstruction and Development (EBRD), and provide businesses and the economies of the countries with a vital boost.
86 | Global Trade Review
The agreements are expected to lead to the development of a Deep and Comprehensive Free Trade Area (DCFTA) between each country and the EU. “The DCFTA creates unique opportunities for small and medium-sized enterprises in Ukraine, Georgia and Moldova to export to the EU, with stable and predictable preferential access to the largest market in the world,” says EU commissioner for European neighbourhood
policy and enlargement, Johannes Hahn. “At the same time, the new framework requires firms to make the necessary investments and to set up the right conditions to comply with higher technical standards involved and to encourage new business relationships.”
he European Bank for Reconstruction and Development (EBRD) has granted a €25mn loan to Universal Alloy Corporation Europe (UACE), a producer of aluminium components for aircraft, giving a boost to Romania’s growing aerospace industry. The credit is an extension of a €25mn loan EBRD provided to UACE in 2012, and will enable the company to increase capacity across all activities. It will also support the introduction of innovative technologies, such as full recycling of metal chips, as well as training of local staff. EBRD was not able to disclose the tenor of the loan. UACE, based in Maramures in northern Romania, supplies leading aircraft manufacturers such as Airbus, Boeing, Bombardier and Premium AEROTEC, and has experienced increased demand as a result of the rapid growth of the air transport industry. EBRD says the investment is part of its efforts to bolster the competitiveness of Romania’s private sector and drive foreign direct investment in the country. According to EBRD director and regional head Matteo Patrone, Romania is moving toward a “more sophisticated manufacturing sector”. “UACE’s success proves that Romania can become a true hub for manufacturing, able to attract foreign investors to its qualified workforce,” he says. The company, a part of the Swiss-Austrian Montana Tech Components group, was set up in 2008 and is among the world’s four leading producers of metal aerospace parts. Earlier this year, the bank provided a US$8.5mn loan to Belgian aerospace company Sonaca to expand its operations in Romania.
LMEshield – Secure and effective commodity receipting
LMEshield is the new central electronic register providing secure and effective off-warrant commodity receipting. Delivering efficient global inventory management, LMEshield is founded in the LME’s extensive experience in overseeing a global warehousing network. This advanced system supports and enables lending, addressing uncertainties surrounding commodity receipts as collateral, and reducing the risk of fraud on financed material.
While the LME endeavours to ensure the accuracy, reliability and completeness of the Information, neither the LME, nor any of its affiliates makes any warranty or representation, express or implied, or accepts any responsibility or liability for, the accuracy, completeness, reliability or suitability of the Information for any particular purpose. The LME accepts no liability whatsoever to any person for any loss or damage arising from any inaccuracy or omission in the Information or from any consequence, decision, action or non-action based on or in reliance upon the Information. © The London Metal Exchange. The London Metal Exchange logo is a registered trademark of The London Metal Exchange. The London Metal Exchange, 10 Finsbury Square, London EC2A 1AJ | Tel: +44 (0)20 7113 8888 | An HKEX Company.
Talk to our team today to find out more.
May powers up Hinkley plant
he UK has given the go-ahead for the first new nuclear power station for a generation. After an abrupt halt to review Hinkley Point C in July, the government is now ready to push ahead with Europe’s largest energy project, based on a new legal framework on future foreign investment in the plant. The £18bn plant will be constructed by France’s EDF Energy and China General Nuclear Power Corporation (CGN). There are also plans for the two companies to build two other power plants in the country, Sizewell C and Bradwell B. Plans for Hinkley C were put on hold in July after new UK prime minister, Theresa May, said she needed time to assess concerns over its high cost, unproven technology and the role of foreign investors. “Ministers will impose a new legal framework for future foreign investment in Britain’s critical infrastructure, which will include nuclear energy and apply after Hinkley,” says the government in a statement.
The new setup will mean the UK government is able to prevent the sale of EDF’s controlling stake before the completion of construction, and it will also mean that the government is able to intervene in the sale of EDF’s stake once Hinkley is operational.
security to bring the UK’s policy framework on par with other major economies. EDF and CGN are to receive a fixed price of electricity of £92.50 per megawatt hour, rising with inflation, for 35 years. Critics have argued that the guaranteed price is too
The new regulations to nuclear plants will form part of overall reforms to the government’s approach to ownership and control of critical infrastructure. After Hinkley, the government will take a “special share” in all future nuclear newbuild projects to ensure that significant shares cannot be sold without its knowledge or consent. The new regulations to nuclear plants will form part of overall reforms to the government’s approach to ownership and control of critical infrastructure. Full implications of foreign ownership will be scrutinised for the purposes of national
expensive when wholesale electricity prices are currently less than half that amount. David Elmes, head of the Global Energy Research Network at Warwick Business School, says: “This deal was started a decade ago. The choices the UK has for the supply and use of energy have changed considerably since it was first conceived. We need a serious discussion of cost effective opportunities, so we’re not boxed into such a decision again.”
Greece makes landmark SME loan securitisation
reece has arranged its first SME-backed loan securitisation since 2007, as part of a €648mn offering of senior notes. The reopening of structured finance for Greek banks signals an important easing of market conditions after years when securitisation as a funding source has not been available. The notes are secured by loans provided by National Bank of Greece (NBG) to SMEs under Greek law. Issued by Irish company
88 | Global Trade Review
Sinepia, the notes are listed on the Irish Stock Exchange and eligible for trading on the regulated market. Sinepa purchased a €648mn loan portfolio from NBG, using funds from the notes issuance. The European Investment Bank (EIB) will invest up to €215mn in the notes while the European Bank for Reconstruction and Development (EBRD) and the European Investment Fund (EIF) will invest €50mn and €35mn respectively. NBG is one of Greece’s four systemically important
The reopening of structured finance for Greek banks signals an important easing of market conditions. banks, which between them hold over 90% of total assets in the financial sector. The EBRD participated in the successful recapitalisation of the banks in October last year and has since also provided trade financing facilities.
New matchmaking platform for SMEs
he UK is pushing ahead with plans to launch a platform that it hopes will match the thousands of SMEs that are rejected for bank lending with alternative financiers that are interested in doing business with them. The Bank Referral Scheme, which was first initiated in 2014 by former chancellor George Osborne, is now open for a second round of proposals from finance platforms that want to be designated by the treasury to participate. The treasury recently announced it had selected three platform providers from its first round of assessments: Bizfitech, Funding Options and Funding Xchange. The scheme will require banks that refuse loans to companies to make a referral to the designated finance platforms. “Small businesses continue to face barriers when trying to gain access to finance, both from the banks – as highlighted in the recent Competition and Markets Authority (CMA) investigation into retail banking – and from a lack of awareness on SMEs’ part of new funding options available through fintech channels,” says managing director at Boost Capital, Alex Littner. “At a time when big financial institutions like RBS and NatWest are threatening to charge business customers just to deposit money, it’s clear mainstream providers are not always working in SMEs’ best interests, or adequately serving their day-to-day needs.” In a recent survey by the British Bankers Association (BBA), more than 40% of SME respondents say they will use the platform. The BBA said it welcomes the plans and that it was a great opportunity for businesses to have “multiple choice” from different providers. Industry will be working with government to bring forward legislation for the scheme, which is due to launch later in 2016.
Nordic Region Trade & Export Finance Conference 2016 Stockholm, Sweden | Radisson Blu Waterfront November 29, 2016
Returning for its ninth year, the Nordic Region Trade & Export Finance Conference features as the only event of its kind in the region, attracting a vast cross section of delegates and providing unrivalled networking opportunities for domestic, regional and international financial institutions, SMEs and MNCs, policy makers and trade finance specialists. The event will see high level delegates from across the trade finance community gather to discuss numerous external risks and opportunities faced by Nordic exporters in light of their activities across the globe. With over 400 of the trade finance community expected in attendance, 2016’s event looks set to eclipse the previous year’s delegate numbers once again, enhancing the quality of networking and business opportunities with the industry’s experts, making this an event not to be missed. “A great opportunity to meet with clients and colleagues in the same industry, as well as listen to hot topics in the market. All in one day!” S Aldergren, Danske Bank
“This is the central event for the industry in Nordics and an excellent way to network.”
2015’s vital statistics
Sectors attended in 2015
Corporates & traders Banks & financiers Insurers & risk managers Solution providers Non-bank financiers ECAs & multilaterals Consultants & accountants Govt orgs & public bodies Lawyers Media Other
34% 24% 17% 6% 5% 5% 3% 2% 2% 1% 1%
J Sahler, SEB
For more information please contact Judith Mülhausen at firstname.lastname@example.org or visit www.gtreview.com
Brexit watch The latest developments
ollowing a short respite, the UK has been embroiled in heated internal discussions and debate, with little surfacing in the way of a solid strategy of how it plans to proceed with its exit from the European Union. After months of sidestepping the question of when it would invoke article 50, the move which will trigger the process of its official departure from the bloc, in early October, prime minister Theresa May announced it would happen in March 2017. This would allow the UK to depart from the bloc by March 2019, ahead of the next European Parliament elections. The announcement, and subsequent responses from EU leaders, all of which carried notions of a ‘hard Brexit’ strategy, set off algorithms on trading platforms around the world that triggered the sale of sterling and saw it crash and hit new lows. While the currency recovered from the ‘flash crash’, it has fallen dramatically against the euro and the US dollar since the referendum, bringing good news for exporters and bad news for importers and manufacturers buying material from abroad. Meanwhile, May has tried to reassure the leaders of devolved nations Scotland, Wales and Northern Ireland that they would be involved in devising an exit strategy. In the last week of October, she met with them for the first time since the vote and promised to create a new joint forum. Scottish and Welsh first ministers Nicola Sturgeon and Carwyn Jones both voiced
90 | Global Trade Review
“deep frustration” saying they were none the wiser after the meeting. Sturgeon is pushing for Scotland, which voted to remain in the EU, to have continued access to the EU single market, even if the rest of the UK opts to leave. The planning continues. Meanwhile, some key trade highlights that GTR has covered over the period follow:
The total number of passports held by companies is 359,953 – highlighting the scope of cross-border services that could be affected.
Passporting fears Data from the UK’s Financial Conduct Authority (FCA) shows that around 5,500 UKregistered financial services firms rely on ‘passporting’ to do business in EU countries, revealing the potential impact an exit from the single market will have on the City of London. Passporting is issued under various EU directives and the nature of the passporting mechanism means that a firm can hold multiple passports under one directive and/or multiple passports to operate cross-border into different member states. It allows firms to operate and sell their services within the bloc without needing additional local licences. The total number of passports held by companies from both sides is 359,953 – highlighting the scope of cross-border services that could be affected.
Export surge The UK’s deficit on trade in goods and services narrowed by £1.1bn in July, giving renewed hope to British exporters. The narrowing trade gap was driven by a boost in British goods exports, which jumped by £0.8bn, or 2%, while imports dropped by 3.6%. The plunging pound
helped boost exports while dampening imports. However, just a few days after the ONS released its data, the British Chambers of Commerce (BCC) published its first economic forecast since the EU referendum, in which it downgraded its GDP growth predictions from 2.2% to 1.8% this year. It also reduced its growth forecast from 2.3% to 1% in 2017 and from 2.4% to 1.8% in 2018.
India trade The UK has set up a trade working group with India in preparation for future deals with the country according to trade minister Liam Fox. It cannot formally make any deals until it has left the EU, a process that is expected to take at least two years from when it is officially declared. However, the government says it is keen to start preparatory talks. Earlier, the Department of International Trade said it has established a bilateral trade working group with Australia. The group is expected to meet bi-annually with the first meeting scheduled for early 2017 in Australia. Commenting on the new groups, partner at law
firm King & Spalding, Iain MacVay, says: “I think it’s fantastic. The UK needs to engage with all its trading partners – not just India and Australia: pretty much everybody. We’re going to need friends in this process.”
Bankruptcy concerns Brexit has been a catalyst for negativity across global economies and insolvency levels are expected to be the weakest since 2009 according to global trade credit insurer Atradius. In a new report, The Insolvency Forecast, the company says the UK’s decision to leave the EU has sparked a downward revision of GDP forecasts, which has led to a worsening of bankruptcy projections in a number of advanced markets. The report forecasts insolvencies in the UK to rise by 2% in 2016 and by 3% in 2017. Greece is expected to face a 6% increase in business failures this year followed by a further rise next year. Insolvencies are also predicted to rise year-onyear in Finland, Switzerland, Denmark, Canada, New Zealand, Austria, Sweden and Luxembourg.
Commodity trade finance survey
Financing the future: Looking ahead in commodity trade finance GTR recently teamed up with law firm Holman Fenwick Willan (HFW) to conduct a survey on the future of the commodity trade finance market focusing of four main topics: the role of securitisation in trade finance, alternative finance, digital solutions and sustainability.
he key finding from the survey, which included feedback from close to 200 respondents, is that the commodity trade finance market is struggling to come to terms with new developments. “In particular, it is lagging behind in exploiting certain novel payment methods and the rise of alternative finance providers is not mirrored in the actual use of such finance in the lending market,” says Philip Prowse, partner at HFW. “Shifting priorities, such as sustainability requirements, are also adding new challenges for market participants.” “The question that needs to be addressed is whether, and if so why, there is a reluctance to adapt and whether the tools the market is being offered are simply not fit for purpose, or are not sufficiently understood or available,” he adds.
Background to the survey What is the future of trade finance? Start-up communities and even global traders are increasingly unable to access traditional sources of finance. Technology and sustainability are becoming increasingly prominent in the landscape. In conducting this survey, we sought to gather the views of the commodity trade finance market on the future of its business. The survey was comprised of 18 questions covering the four main topics we chose to tackle. Market participants responded in significant numbers and the results somewhat reflected the uncertainty prevalent in the market. For example, in relation to certain questions there was almost unanimity on points raised, but for other questions, the market was evenly split in its response. There remains a need to address the barriers in trade finance. Almost half of respondents identified the reluctance of banks to participate in the market as a significant barrier to them accessing commodity trade finance funds. Over a third identified market regulation as an obstacle. Is technology able to overcome these barriers and assist with greater access? Over half of the respondents to our survey identified
92 | Global Trade Review
“The question that needs to be addressed is whether there is a reluctance to adapt and whether the tools the market is being offered are simply not fit for purpose.” Philip Prowse, Holman Fenwick Willan
that the cost of obtaining trade finance has risen or increased considerably in the last five years. Can technology and the advent of an increasing number of specialised trade finance digital solutions help to overcome the increasing costs? Is alternative finance the answer? What follows is an excerpt from the survey findings – focussing on securitisation.
Securitisation Securitisation is not the most obvious vehicle for commodity trade finance. So why is it that we are seeing an increasing number of companies using, or looking to use, the structure? What is a securitisation? Essentially, this is when one party (the issuer) issues bonds/notes, into which investors (noteholders) invest. The issuer then uses those sums for whatever activity the bond permits; so for our purposes, commodity trade finance deals. The proceeds received from the underlying commodity trade finance deals are then used to repay the noteholders and any excess is dealt with in accordance with the terms of the prospectus and related documentation (i.e. the contractual basis which sets out the terms and conditions for the notes issuance) which has been issued. Problems with the securitisation structure The main problem in using securitisation is often the tenor of trade finance deals compared with the duration of a bond.
Commodity trade finance survey
Respondentsâ€™ main commodity types traded/funded
? 80% Metals
As a finance provider or borrower, what appeals to you about a securitisation programme in relation to trade finance assets?
Main barriers to accessing trade finance in the current market
47% 48% Ability to de-risk
Reluctance of banks to participate
36% Market regulation
28% Developing new products
22% Ability to stay involved with the market
23% Awareness of range of trade finance instruments available
20% Creating regulatory relief
13% No barriers
November/December 2016 | 93
Commodity trade finance survey
Trade finance securitisations to date have often taken the form of one investor becoming the noteholder in relation to one company’s portfolio of trade finance assets. This is relatively easy to manage. The complexity arises where there is an issuer whose sole purpose is the investment of note proceeds in trade finance deals. This issuer will have numerous deals with counterparties, who then themselves have various counterparties. Whereas a bond programme is likely to run for a year or more (ie three, five or seven years), most trade finance receivables will have a maturity of 60 to 180 days, so there will be a continual need for churn if the bond is to succeed, lest there be unused investment idling away and being unable, therefore, to service the bond payments. However, not all market participants have been deterred – please see the case study for further details. The securitisation process is also not cheap. The issuing of a prospectus can often cost many hundreds of thousands of pounds in professional advisor fees, much of which will often have to be financed upfront before noteholders become involved. Indeed, our survey reveals that cost is the main issue in deterring market participants from using securitisations. It can also take some time to establish the necessary structures and complete the process of issuing a prospectus, which again can contribute to high costs. A close second deterrent in our survey is the perception that the securitisation procedure means that there is a lack of relationship with the commodity, because the deals are generally a level removed from the direct investments that are being made. One of the respondents identified their key concern as being a “lack of control of assets in the programme... and the asset conversion cycle”. This can, however, all be avoided through the detailed requirements of prospectus documentation and through carefully defined investment eligibility criteria. Advantages of the securitisation route The advantages of using securitisation can be manifold. For noteholders, all the work of sourcing deals is carried out by someone else. The bond issuer will also take care of burdensome regulation, like sanctions, KYC and so on. The prospectus regime is detailed and highly exacting, which means noteholders often feel more comfortable with the structure and risk, irrespective of the expected performance of the underlying assets, even in a turbulent market. Furthermore, bonds are usually secured in this asset class, so there will be security to enforce in the event of a default, which should mean that noteholders are preferred even in the event of issuer insolvency. A properly secured liability will also be one that will not be subject to the new EU laws on “bail-in” of financial liabilities under the Bank Recovery and Resolution Directive. For financial institutions, the attraction is the chance to de-risk. They can also widen their risk portfolio, achieving a broader spread of investment across different asset pools. This aligns with the findings of our survey: when asked what appealed about the securitisation process,
94 | Global Trade Review
the majority of respondents (48.3%) selected the opportunity to de-risk as the main factor. In essence, the structure offers a complex, defined and managed investment opportunity that was hitherto available in bespoke pre-export structured commodity finance deals, but which has dropped away due to the burdens of cost of regulation. A method for the future? There remains a desperate lack of liquidity in the trade finance space. Securitisation may be one method by which investors not normally involved in the commodities markets could be tempted to invest. It may also be another way in which banks can re-enter the market, challenging the common perception that banks are simply not willing to participate in the market (as identified by
Securitisation may be one method by which investors not normally involved in the commodities markets could be tempted to invest.
our survey with 47% of respondents selecting reluctance of banks as the main barrier to accessing finance). For example, a major European bank in December last year closed the largest trade finance securitisation to date, with a value of US$3.5bn. This was done via a synthetic collateralised loan obligation, which is unfunded, meaning that the assets sold stay on Deutsche Bank’s balance sheet, but the risk is effectively passed to the investors. The third such transaction carried out by the bank, it stated at the time that it intended to use the method again to reduce its risk-weighted assets (and accomplish regulatory relief in this way). Over half of the respondents to our survey said that they are moderately inclined to engage in a trade finance securitisation programme – an indication perhaps of the market’s willingness to innovate to overcome barriers in accessing finance.
Case study: Synthesis Trade Finance
FW has advised a client, Synthesis Trade Finance, on the establishment and issuance of a US$500mn bond series for investment in commodity trade finance transactions sourced from various originators. The bond is being listed on the Luxembourg Stock Exchange and the proceeds from the issuance will be invested in commodity trade finance deals across various geographies and commodity types. As the underlying investments were the subject of multiple originations, the bond was novel for the Luxembourg listing authorities and the process to have the prospectus approved was complex, but it does demonstrate the willingness of the authorities to co-operate in such novel deal structures and could be an indication that securitisation is a viable structure for the commodity trade finance sector. We would like to thank everyone who took the time to respond to the survey. The full report can be found here: www.hfw.com/downloads/Financing-thefuture-GTR-Report-Oct-2016.pdf
Commodity trade finance survey
Respondentsâ€™ main geographical areas of operation Global
Europe Middle East
Number of employees in organisation*
over 250 employees
of respondents said they would be inclined to engage in a securitisation programme in relation to trade finance
43% under 250 employees * Based on number of respondents
Respondentsâ€™ main sectors of operation
? 42% Banking
24% Commodity traders
9% Other finance providers
4% Commodity traders & finance providers
4% Commodity supplier
November/December 2016 | 95
ITFA Young Professionals roundtable
Young trade professionals: the European perspective GTR and the International Trade and Forfaiting Association (ITFA) Young Professionals network hosted a roundtable in Poland in September to discuss the current risk environment, innovations in technology and the needs of young professionals in the marketplace.
Hall: We’re going to start off talking about trade finance in Europe. At the moment, we have slow growth: the European Union’s GDP grew by only 1.9% last year and just 0.3% in Q2 of this year. We have questions over free trade agreements; we have increasing doubts over the future shape of the EU; and the global market is entering into a period of uncharted territory. We can see this reflected in the H1 2016 trade finance revenues of the 12 largest global corporate and investment banks, which dropped by 9% this year. With that, and with the growing instability in Europe, be it financial, such as in Greece; social, such as the migrant crisis that we find affecting the south of Europe; or political, such as Brexit and the pan-European rise of far-right politics; what does this mean for the future of the risk landscape for our business?
96 | Global Trade Review
Wilmink: There is more political uncertainty in the market, which would imply higher pricing. However, with the low interest rate environment, less growth and fewer assets around, and all market participants still hungry for assets, this has actually resulted in lower pricing. Clients are in the driving seat and clearly we are working in a buyers’ market. Hall: So you think that the rewards versus the risks you have to take are imbalanced? Wilmink: Exactly. Pojnar: When it comes to plain vanilla products in trade finance, I’m not sure if they are in danger because when the risk is higher our products become more popular, because all the counterparties want to secure themselves. Borowiec: We do get compliance problems with countries vital for Polish exports, such as Poland’s
ITFA Young Professionals roundtable
Roundtable participants ●
Jakub Borowiec, trade finance manager, Bank BGZ BNP Paribas Asif Dad, assistant vice-president, trade finance syndications, Barclays Chris Hall, head of trade asset management, Lloyds Banking Group (chair) Jakub Kopinski, senior trade finance specialist, mBank Grzegorz Pojnar, trade finance manager, ING Bank Slaski Oleh Turchyn, trade finance manager, Bank Zachodni WBK Marc Wilmink, manager, trade finance risk distribution, Rabobank
neighbours: Ukraine, Belarus and Russia. A substantial part of the exports, in large part agricultural products – apples or meat – went to Russia before the sanctions. However, we do see Polish companies reacting very well and profiting by shifting their attention to Africa or South America. So Polish exports may grow by some 10% in 2016. We are also hoping to start doing business with countries such as Iran and Cuba soon, where Polish producers of agricultural and mining machinery or food see enormous opportunities.
“Polish exports may grow by some 10% in 2016. We are also hoping to start doing business with countries such as Iran and Cuba soon.” Jakub Borowiec, Bank BGZ BNP Paribas
Turchyn: Higher risk is a good thing for trade finance in some respects. Recently we have seen a lot more large supply chain finance programmes implemented in Poland than in the years of stability, for example, up to the crisis of 2011. So as the risk environment is worsening, some specific trade finance products are doing better and better. Wilmink: I would say to some extent that is correct and I do agree that if there’s more risk it might benefit the trade finance business because it needs more underlying documents. However, the main problem is that overall trade volumes are down, so it is more to do with supply and demand. With less business around, people are probably willing to take on a little bit more risk. Turchyn: From the asset management perspective, it is true, I totally agree. But from our perspective, talking to the client, selling export finance and plain vanilla trade finance, we see that they are more and more interested in, for example, supply chain finance.
Left to right: Jakub Kopinski, Jakub Borowiec, Oleh Turchyn, Grzegorz Pojnar, Marc Wilmink, Asif Dad, Chris Hall
These are very well-developed and well-known products in the UK, for example, but in Poland they are only beginning to develop. We should be going after our customers and supporting them with these types of solutions. So I do think there are a lot of opportunities with this. Dad: Most certainly, there are a number of markets where there is an imbalance between risk and reward. Trade margins are generally stable, even in times of uncertainty, and for that reason I don’t envision this imbalance being corrected in the short term. The recent events in Turkey are a great example; the attempted coup has had an immaterial impact on the margins within trade, whereas if you were to cast your eyes over to the bond market and credit default swaps (CDS) this would paint a completely different picture – margins and yields have adjusted according to market sentiment. Hall: So you might bring in innovative structures, and whilst they might be structures that are used elsewhere, they are relatively new into the Polish market? Turchyn: Yes. For example, the financing of suppliers in Asia. In the UK, it is probably a very common thing and something that everybody does, but in Poland, not that many banks do it. There are huge retailers and huge companies which buy from China, Hong Kong, India, and we see that there is interest from our customers in these types of solutions. Hall: Banks are reducing their correspondent banking networks, and yet clients are exporting to ever more varied places. What else are your clients asking for, and more importantly, how is your organisation changing and evolving to meet their needs? Wilmink: In the environment where I work we see our clients mainly pushing for lower pricing as a
November/December 2016 | 97
ITFA Young Professionals roundtable
of electronic bills of lading, and how it can speed up delivery for clients. I guess my question to you would be: is this something that you are all embracing? And is it something you are seeing client demand for both in Poland and the other areas you are in?
consequence of the ample liquidity in the market and eagerness for assets. Clients have plenty of financial institutions to tap into and can find lower pricing. In terms of diversification we don’t really see very exotic or new types of business as a consequence of recent developments as yet.
“The main banks are co-operating with key suppliers of software solutions, we don’t have [shared] third-party platforms. We have separate solutions.” Grzegorz Pojnar, ING Bank Slaski
Dad: In the UK market, we have seen a fall in demand for traditional trade finance products such as letters of credit. Clients instead prefer to conduct business via open account. As a consequence, we’ve seen an increase in activity for receivables finance and supplier finance. Clients are more than ever focused on balance sheet management and ensuring that they are supporting their suppliers. Pojnar: Coming back to the pricing, if we cannot do anything to make pricing higher, we need to take a closer look at the cost side again, and we have to do everything to cut costs. I see in my bank that we have a strong focus on the digitalisation of the process, getting everything that can be done without a human done by a computer. Hall: Absolutely. We had a session earlier today at the ITFA conference on technological innovation and how you can get intermediation
98 | Global Trade Review
Wilmink: If you look at the trade finance market, I still think it is at the very beginning of digitalisation. If you look at the documents that go back and forward and the amount of stamps that have to be put on and the signatures on couriers and bills of lading, I think there is still quite a fair amount of work to do to make this more efficient and save time. Borowiec: In the Polish market, the beneficiary can actually receive a guarantee signed with an electronic signature via email. In this way the whole transaction is done electronically. When it comes to LCs, Polish banks have also started thinking about the bank payment obligation (BPO). Pojnar: What is typical for the Polish market in terms of the electronic banking system is that the banks are building those solutions on their own. Okay, the main banks are co-operating with key suppliers of software solutions, but we don’t have a third-party platform where all the banks can log in and sell it to the customer. We have separate solutions. Hall: Do you think we as an industry should try to harmonise solutions, rather than each bank having its own in-house solution? Kopinski: Especially when it comes to presenting documents in the EU. There should be a common standard. With Germany in particular we have some problems because we need to show the Germans all the original documents, but we are more digitalised than Germany, so sometimes the process is prolonged because of the need for originals in Germany. If the system could be standardised for the whole of Europe, for example, and if we are able to present documents which are authorised to our colleagues in other countries, it will be much easier and faster to co-operate. Hall: So, there is an issue where you have products which are, in some cases, centuries old and then you’ve got a modern need to update how the client experiences that. And that’s a gap to fill. We are aware that the first blockchain transaction recently closed. How well do we think that could translate itself into a sustainable line of business for everyone? Dad: I’m really proud that Barclays has been able to execute the first trade finance transaction using blockchain to manage documentation. The feedback we’ve had from the clients involved has been incredibly positive, and this success will hopefully have a domino effect with many more transactions to come and may change the way trade will be conducted going forward.
Technology like blockchain needs to be adopted by us all if we’re going to make long-lasting change and provide clients the instant gratification that they yearn. Blockchain is one of many different current workstreams in the market. I’m sure it is only a matter of time until the next big innovative idea is shared with us. Hall: It’s a question of whether banks are innovating because they think they have to, or if they are innovating because their clients are asking them to. And that for me is the point where as long as it is relevant to the clients, it will have a much greater chance of being successful. What do you think? Wilmink: I also think that in addition to that, the trade finance world is a global business and also includes less-developed institutions, and for them it might be even more difficult to pick up with these new technologies. You will still need the older technologies anyway to keep on doing business with the lessdeveloped institutions. It will take quite some time for the whole industry standard to change because of the different levels of development of different continents’ banks and institutions. I think that’s also one of the reasons why it is already taking so long for trade finance to become digitalised. Hall: ITFA established a young professionals’ network last year to help bring people together, provide mentoring, networking opportunities and give like-minded people a chance to get together and discuss trade finance. What development do you as young professionals in your marketplace need and want, and how can networks like the ITFA young professionals’ network help you with that?
ITFA Young Professionals roundtable
young professionals want to work in trade finance here. Wilmink: I think elsewhere banks are struggling to get young people in general, because banking is less popular than it used to be. Today if people want to be in the financial sector they prefer the more fintechtype of companies. Certainly in countries like the Netherlands and the UK, there is actually a problem in terms of getting new people into trade finance and banks overall.
“It was only 20 years ago that the trade finance business in Poland was built up from scratch: all the expertise came from other countries.” Oleh Turchyn, Bank Zachodni
Turchyn: Relatively young people here in Poland are very experienced, with 10 years of experience for a 35-year-old professional. It was only 20 years ago that the trade finance business in Poland was built up from scratch basically, and all the expertise in trade finance, supply chain and export finance came from other countries – the countries who brought banks here. All of us work for Polish banks with foreign capital, so that is where we get all the experience. Pojnar: We have many fields that can be explored – such as export finance: so we definitely need knowledge to build it up here. Turchyn: It’s not only the banks; our customers also employ young professionals, so it is maybe a little bit easier to communicate because we have a lot of customers which are huge corporates and when the customer’s representative is your age, it helps. This is how it is done in Poland.
Wilmink: Having senior people helping you establish your network is one of the key things in this market, especially because it’s not digitalised and it’s still a people business. Having a good network and knowing your way around the market is crucial and that’s where the more senior people can help the new people in the market. The senior people can transfer their expertise and their network to the younger professionals. Dad: Within the Polish trade industry, are there many young professionals? Also, what development opportunities do you have? Borowiec: Banks and the people working in them are relatively young because the whole commercial banking industry was born in the 1990s with the introduction of the market economy. So most of our senior colleagues are in their 40s. We have got quite a young staff and an energetic environment of shared knowledge. Banks are still able to pick the best talents, especially considering the fact that some 40% of young Poles have a degree nowadays. Pojnar: We don’t have a problem when it comes to getting new, young staff, because trade finance is something interesting for them. Trade finance is not something typical, it is related to foreign markets, so
November/December 2016 | 99
Spotlight on Europe In the current environment there are many challenges for a business looking to expand. Many companies settle for survival, others look for opportunities to grow. As companies seek new markets, products, channels and ways of operating, what is influencing their decisions and what are the opportunities for Treasurers in Europe? HSBC asks these questions of Jeroen Bakhuizen, Head of International Subsidiary Banking, Europe.
How is Europe, as a centre of trade, faring in comparison to other regions in terms of treasury activity? One of the key differences between Europe and other regions is the existence of the eurozone. It is an advantage for many companies looking to rationalise their treasury operations. US companies that have been active in Europe for a long time tend to have a sophisticated organisational setup; almost all the large ones have regional treasury centres (RTCs) with regional decision-makers located in Europe. Because of the eurozone and the sophisticated banking systems on offer they have been able to centralise and rationalise across the whole region. Many large companies – of US$20bn-plus turnover – have been doing this for some time. With the banking and economic infrastructure
100 | Global Trade Review
in Europe making it relatively easy for companies to adopt a regional treasury model, a similar trend is now seen with companies of US$500mn to US$5bn revenue undertaking the same exercise. The key RTC locations, in no particular order, are the UK, Netherlands, Switzerland and Ireland, with Belgium and Luxembourg also now commonly seen as locations for these hubs. With more discussion on ‘substance’ on the agenda as part of the OECD’s BEPS tax initiative, treasury locations are having to move to physical operating locations, which clearly makes the choice of site highly important. The transport links available in these locations, particularly those on the continent, is an added strength which they offer. While Europe does not have doubledigit GDP growth, it is stable and
is clearly an advantageous region in which to rationalise business and look for synergies. This exists for Asia and Latin America too, but achieving a truly regional set-up becomes more complex in these regions because of the numerous currencies used, whereas European flows are mainly covered by US dollar, British pound, euro and, to a lesser extent, Swiss franc, Turkish lira and Polish zloty. With the ongoing eurozone difficulties, demographic changes and Brexit, how will such events affect appetite for continued foreign direct investment (FDI)? Given how swiftly the region stabilised post the Greek financial crisis, we remain confident that appetite for FDI into Europe will be maintained. Pre-UK
referendum and over the last few months post the Brexit decision, we have seen a “wait-and-see” approach from Global Treasurers seeking to invest in the UK but have not seen any major change in the behaviours of corporates investing in the rest of the region. In the European heartlands, little changes from a business perspective.
“The important thing to do is to balance current European events with those happening in other regions.” Jeroen Bakhuizen, HSBC
The important thing to do is to balance current European events with those happening in other regions. Uncertainty and rising production costs in China, for instance, saw automotive firms moving parts of their business back into Central and Eastern Europe (CEE). Remember, it is truly a global economy now and although there are difficulties in Europe, there are also challenges in other regions. What is currently driving the actions and expectations of those engaged in FDI in Europe? FDI in Europe continues to thrive, largely because of the low interest-rate environment. Compared to Q4 2015 FDI may be slightly down but I still see significant M&A activity and other investments from right across the globe. We are seeing strong investment from the US, China and India into Europe. This is a developing trend as corporates are taking a long-term perspective, seeing Europe as a safe investment. There is plenty of anecdotal evidence of companies moving production back into Europe. I mentioned earlier the automotive sector’s continued move into CEE but in other sectors too, production is shifting back.
The reason for this shift tends to be the rising cost of production in Asia as well as a conscious decision from countries such as China to diversify away from being purely the ‘factory of the world’. FDI into Europe really does stem from multiple locations though, with companies from all over the world making huge inward investments. It cannot be said with any conviction if this trend is secure in the long term. But for a corporate finding it difficult to put its own assets to work, if it sees a low interest-rate environment, already has some assets on its radar, and is taking a long-term view, European FDI is going to present an opportunity to put those assets to work. Companies with established overseas operations know that visibility and control over cash is vital at both group and subsidiary level. In Europe, how are treasurers satisfying these aims? Five or more years ago this question would have been all about cash management, certainly for the major multinationals. Treasurers would optimise their bank account structures, rationalising the number of bank accounts and banks to just a few core relationships across the region. This trend continues, trickling down to smaller multinationals. But now sophisticated regional treasurers are taking up the next wave of rationalisation and optimisation. This time it is more around trade and trade finance. They will be requiring more sophisticated and co-ordinated trade solutions, including structured deals and regional receivables finance solutions, with the objective of optimising their balance sheet and bankrelated fees and expenses. In fact, in the RTC space, from a starting point of pure cash management, we have seen the function evolve more into balance sheet optimisation and trade finance-related rationalisation. And we are now also seeing more companies moving onto foreign exchange (FX) platforms, allowing them to bid out all their plain vanilla FX deals. As a bank we have to be able to meet these growing needs head-on. Given these changes then, and the complexity of the European economic, cultural and political landscape, what should a treasurer expect from his or her banking partners in terms of assisting growth,
both from within the region and externally? There are a number of key components that a bank needs to be able to meet customer needs and provide a competitive service offering in Europe. One of the most vital elements is its systems. When competing with other global banks and regional banks, it is only possible to get an entry ticket to kick-start discussions with prospective clients and maintain existing relationships if you can prove that your systems are best-in-class. With HSBCnet, our global e-banking platform and our global liquidity engine, for instance, we prove time and again that we are one of the major players. We continue to invest in HSBCnet, not only bringing the platform to mobile devices and adding a host of essential features around this but also ensuring it is more than just a cash management tool: it is a portal into a whole range of HSBC products and services for regional treasurers, including core functionality for FX and trade. A bank must also exhibit its competitive edge in other ways. We are very serious about our global and regional presence, especially in the current banking environment where true global players are few and far between. What sets us apart is the strength of our local presence and the way in which this presence is increasingly co-ordinated right across the bank. Our international subsidiary banking business has evolved into a harmonised operation, with the same set-up, systems, philosophy, look and feel in every country where our multinational customers are banking with us in. The experience will be the same at any level, wherever that operation may be. This means that while we are local, we really are able to present the whole region to the client. Another competitive edge that we have at HSBC is our Regional Relationship Manager proposition, which assigns a dedicated regional contact point in the location of the client’s RTC. This gives our clients one point of contact – one trusted advisor – who remains the same throughout. And instead of waiting for the client to come to us and ask for a solution, we do it the other way around. We let the client know what is at the cutting edge, proposing new ideas as they arise. For HSBC, assisting the growth of clients is all about building long-term relationships.
November/December 2016 | 101
Institutions and companies mentioned in this issue AIG 4 ABB 10 ABN Amro 6-9, 40, 58, 67 Accenture 36 Accuity 17, 39 African Export-Import Bank 57, 61 African Development Bank 61 African Trade Insurance Agency 12 Algerian Forum de Chefs d’ Enterprise 80 Agricultural Bank of China 16, 40 Airbus 79, 86 Al Baraka 81 Algeria British Business Council 80 Alibaba 3 Allianz Group 4, 14 Amazon 3 Amec Foster Wheeler 80 Amentum Capital 9 American Express Bank 10 American International Agricultural Group 81 ANZ 16 Apple 3, 85 Arthur J Gallagher 5 Asia & Africa General Trading 79 Asian Development Bank 31, 40 Asian Infrastructure Investment Bank 40-42 Atradius 69 Attijariwafa Bank 58 Audi 76 Axis 12 B&N Bank 36 Bacabeira 70 Baker Hughes 72 Banca Monte dei Paschi di Siena 40 Banco Exterior de Cuba 79 Banco Modal 70 Banif Bank 4 Bank BGZ BNP Paribas 96 Bank of America Merril Lynch 6, 35, 40, 74 Bank of Baroda 16 Bank of China 40, 58 Bank of England 29, 37 Bank of Mexico 76 Bank of Texas 67 Bank of Tokyo-Mitsubishi 58 Bank Zachodni 97 Banking Environment Initiative 24 BankTrade 68 Barak Fund Management 61 Barclays 10, 32, 36, 58, 61, 87 BBVA 40 BBVA Bancomer 75 BCJ 9 BCRA 67 Beazley 47 Bibby Financial Services 9 Bizfitech 88 BlackRock 28 Bloomberg New Energy Finance 27 BMW 76 BNP Paribas 6-9, 25, 40, 46 Boeing 86, 79 BOK Financial Corporation 67 Bombardier 86 Boost Capital 88 BP 75 Brazilian Development Bank 70 Brighann Cotton 32 British Exporters Association 19 Brit 12 British Bankers Association 88 Brooklyn Underwriting 6 BSI Bank 39 BTMU 51 Business and Sustainable Development Commission 29
102 | Global Trade Review
Cambridge Institute of Sustainable Management 24 Capco 12 Capgemini 10 Capital Chains 10 Capital Economics 67, 72 Cargill 10, 24 Caspian Sea Capital 4 CBSteel 70 Centre for Automotive Research 76 Centre for Innovation Social Entrepreneurship 12 Chevron 75 China Banking Regulatory Commission 25 China CITIC Bank 16, 40 China Communications and Construction Company 70 China Construction Bank 40 China Development Bank 40 China Exim 57 China General Nuclear Power Corporation 88 China Merchants Bank 40, 57 China Pacific Property Insurance Company 8 CIBC 32 Citi 4, 6, 8, 10, 12, 36, 76 CitiBanamex 76 Clifford Chance 9 Clyde & Co 45 CNBV 76 Cofco Agri 40 Colorful Guizhou Airlines 70 Colorful Yunnan 70 Commerzbank 37 Commonwealth Bank of Australia 9, 16, 32, 35, 40 Cosco 49 CPFL Energia 70 Crayhill Capital Management 39 Crédit Agricole 12, 40, 46, 58, 67 Credit Suisse 37 Crown Agents Bank 4 CTBC Bank 16, 57 Daewoo Shipbuilding and Marine Engineering 46 DBS Bank 16, 35, 39, 40 Deutsche Bank 6, 40, 51, 58, 94 Dints International 19 DLA Piper 57 Drewry Financial Services 46 Dubai Multi Commodities Centre 79 DZ Bank 58 E Sun Commercial Bank 57 East & Partners 61 Eastern and Southern African Trade Development Bank 61 Ecobank 6, 58 Economist Intelligence Unit 6 EDF 88 Elephant Vert 23 Emirates NBD 16, 32 79 Energy Pioneers Eni 57, 81 31 Eris Ernst & Young 10 Ethereum 31 Euler Hermes 5, 8, 9 European Bank for Reconstruction and Development 23, 86, 88 European Commission 17 European Investment Bank 88 European Investment Fund 88 Everest Speciality Underwriters 8, 69 Evergreen 49 Exodus Aviation 67 Export Development Bank of Iran 79 Export Development Canada 8 Export Guarantee Fund for Iran 79 Extraction Oil & Gas 72 Exx Africa 58 ExxonMobil 75 Facebook 3 Falcon Bank 39
Fangyan Group 40 Fiagril Participacoes 70 Fidelity Bank 58 Fimbank 4 Financial Blockchain Shenzhen Consortium 36 Financial System Stability Board 76 Finnvera 23 First Commercial Bank 57 First Gulf Bank 16, 46, 40 Florida Export Finance Corporation 67 Fluent 9 Ford 76 Fosun 70 Freightos 48 Funding Options 88 Funding Xchange 88 Gatechain 37 Ghana Cocoa Board 58 Ghana National Petroleum Corporation 57 Glencore 45 Global Counsel 85 GMAC Commercial Finance 9 Gold Fields Ghana 19 Goodrich Petroleum 72 Google 3 Greater Phoenix Economic Council 76 Gresham 34 Grisons Peak 42 Groupe Lacheb 81 Gunvor 67 Hakan Agro 79 Hanjin Shipping 3, 45-49 Haynes & Boon 71 Helios Investors 4 Helios Towers 62 Hess 75 Holman Fenwick Willan 8, 92 Hong Kong Export Credit Insurance 5 HSBC 5, 8, 17, 35, 42, 51, 57, 74-76, 80 Hunan Dakang 70 Hyperledger 3, 31 Hyundai Merchant Marine 46, 48 IBM 4 ICBC 16, 40 ICICI 32, 40 IHS Markit 70 Industrial and Commercial Bank of China 16, 57 Infocomm Development Authority of Singapore 35 Infosys 32 ING 6, 10, 40, 67, 97 Innovate Finance 34 International Bank for Reconstruction and Development 57 International Centre for Trade & Sustainable Development 26 International Chamber of Commerce 17 International Development Association 57 International Finance Corporation 14, 40 International Monetary Fund 80 International Trade & Forfaiting Association 18 Intesa Sanpaolo 58 Investec 19 IOI Group 23, 25 JP Morgan 6 Karsten Manufacturing Corporation 20 KBC Bank 16 KEB Hana Bank 57 Kellogs 23 KfW Ipex-Bank 58 Khanty-Mansiysk Otkritie Bank 36 Kickstart Accelerator 37 King & Spalding 90 Komercni banka 5 Korea Development Bank 16, 40, 45, 46 Lambert Commodities 23 Land Bank of Taiwan 16, 57 Landsbanki Commercial Finance 5 Leonardo 86 Linux Foundation 31
Lloyds Banking Group 97 Lloyd’s of London 29 Lockheed Martin 86 Louis Dreyfus 10 Maersk Line 48, 49 Main Funders 37 Malayan Banking Berhad 16 Markel 9 Mars 23, 25 mBank 97 MDM Bank 36 Mega International Commercial Bank 16 Menas Associates 82 Mercedes- Benz 76 Merilampi Attorneys 9 MF Global 49 Mitsubishi UFG Securities 62 Mitsui OSK Lines 47 Mizuho Bank 9, 16, 58 Moeller Maersk 49 Monetary Authority of Singapore 39 Montana Tech Components 86 Multilateral Investment Guarantee Agency 12 Nanyang Commercial Bank 40 National Australia Bank 4, 16, 32 National Bank Australia 40 National Bank of Abu Dhabi 16, 40 National Bank of Greece 88 National Iranian Oil Company 79 Natixis 58, 67 NatWest 88 Nedbank 58 Nestle 23, 25 New Development Bank 42 19 NMS International Noble Group 40 Northern Trust 4 Octet 4 OECD 47 Olam 10, 23, 25, 79 Opec 72, 80 Ortac Underwriting Agency 6 Overseas Chinese Banking Corporation 16 Oxford Business Group 81 Paul Hastings 71 Paycelerate 39 Pertamina 81 Petrobras 70 PNC Financial 5 Premium AEROTEC 86 PriceWaterhouseCoopers 8 PrimeRevenue 9 QIWI 36 R3 ECV 3, 31, 35 Rabobank 40, 58, 67, 97 Rand Merchant Bank 58 Rapid Ratings 45, 49 Rautaruuki 9 RBS 6, 9, 88 RCMA 24 ReiseBank 32 Repsol 82 Research Centre for Climate and Energy Finance 25 Rio Bravo 70 Ripple 31, 32, 35 Risklab 4 Saipem 82 Samsung Electronics 45 Samsung Heavy Industries 47 Santander 12, 70, 75 School of Oriental and African Studies 81 Scipion Capital 6, 62 Sembcorp Industries 40 Serv 10 Shanghai Rural Commercial Bank 57 Shell 75 Simmons & Simmons 51 Simpson Spence Young 47
Sinepia 88 Skandia America Reinsurance 12 Skuchain 31, 32, 35 SMBC 6, 12, 40, 58 Societé Générale 5, 6, 25, 40, 58, 67 Sonaca 86 Sonatrach 81, 82 Standard Bank 4, 58 Standard Chartered 10, 14, 16, 32-37, 57, 58 State Bank of India 58 Stenn Financial 39 Sullivan & Worcester 18, 19, 58 Sumitomo Mitsui Banking 16 SunGard 8 Supercharger 37 Swift 14, 42 Swiss Re Corporate Solutions 51 Synechron 31 Synthesis Trade Finance 94 Taipei Fubon Commercial Bank 16, 57 Tallysticks 36 Techstars 36 The Shanghai Commercial & Savings Bank 57 Tinkoff Bank 36 Total 75, 82 Trade Advisory 9 Trade Finance Solutions 5 Trading Alliance Corporation 9 Trafigura 16 Triangle Petroleum 71 TrustBills 4 UBS 6, 10, 37-39 UFJ Bank 6 UK Export Finance 4, 8, 19 UK Financial Conduct Authority 90 UN Sustainable Development Goals Fund 29 UniCredit 4 Unilever 23, 25, 29 Union de Banques Arabes et Francaises 16 United Overseas Bank 16, 40 Universal Alloy Corporation Europe 86 US Export-Import Bank 67, 69 US Overseas Private Corporation 12 US Small Business Administration 68 Vitol 57 Warwick Business School 88 Watson, Farley & Williams 9 Wave 32, 36 Wells Fargo 32, 35 West LB 6 Westpac 5, 9, 16, 23, 40, 51 Willis 40 Willis Towers Watson 5 Wilmar International 25 Windesheim University 10 Woori Bank 57 World Bank Group 57 World Economic Forum 29 World Trade Board 31 WTO 16, 17 Wtorre 70 XL Catlin 5, 68 Yes Bank 3 Zurich 8, 12
People mentioned in this issue Abizaid, Richard Ahearn, John Al-Falih, Khalid Amlot, Philip Ashworth, Stuart Aung, Khaing Zar Baghdadi, Baihas Baker, Paul Barrass, Jason Bass, Deborah Bäte, Oliver Batliwalla, Percy
68 2 62 9 5 40 2 6 10 19 14 2
Bazin, Olivier 8 Beck, Steven 31 Berhaghel, Christian 5 Berry, Charles 2 Besseling, Robert 58 Blackmon, David 73 Blakeman, Bruce 24 Bloomberg, Michael 28 Blythe, Bill 34 Bonafi, Gille 81 Borowiec, Jakub 96-99 Bosland, Jeff 6 Bosoni, Franco 79 Bouteflika, Abdelaziz 82 Bradley, Beth 45-47 Broom, Dominic 2 Brown, Anthony 9 Brown, Russell 6 Buisset, Michael 8 Camacho, Chris 76 Capistran, Carlos 74 Cardenas, Carlos 70 Carlyle, James 31, 35 Carney, Mark 28 Carroll, John 12 Cauthery, Pat 4 Chambers, Jamie 5 Chaudhry, Rajah 39 Clavel, Nicolas 6, 60-62 Clinton, Hillary 74 Coldwell, Pedro Joaquín 75 Colebatch, Walter 39 Contreras-Sweet, Maria 68 Cotti, Daniel 2 Coutinho, Luciano 70 Dad, Asif 18, 96-99 Dasgupta, Bhaskar 8 de Lange, John 3 de Lisle, Nicholas 19 de Mowbray, Geoff 19 Denya, Denys 57 Descalzi, Claudio 81 Desserre, Benoît 5 Diouf, Ibrahima 6 Dolman, Marcus 19 Dunderman, Brad 12 Edwards, Sean 3, 18 Eidel, Michael 32, 35 Ellwood-Russell, Jolyon 50-55 Elmes, David 88 Férnandez De Trocóniz, Francisco Javier 3 Fowler, Katie 18 Fox, Liam 90 Gannon, Gerry 9 Geis, Rüdiger 3 Gellert, James 45, 49 25 George, Perpetua George, Edward 6 Getten, Doug 72, 73 Ghani, Adnan 9 Gil, Michael 8 Gilderdale, Stephen 14 Gisler, Peter 10 Glossop, Edward 67 Goda, Masahiro 12 Golding, Tom 17 Grandage, Nicholas 3 Gray, Phil 34, 37 Grove, Dawn 20 Gupta, Bharat 10 Hahn, Johannes 86 Hall, Chris 18, 96-99 Harris, Simon 4 Hassanzadeh, Elham 79 Herbert, David 6 Hillebrand, Andreas 3 Hölker, Sebastian 2 Hollande, François 86 Hörster, Jörg 4
Hudson, Julian Hunt, Sarah Irwin, Gregor Jain, Gautam Janoff, Philip Jayakumar, PS Jones, Carwyn Jones, Richard Joseph-Horne, Jonathan Juliano, Dan Kadilar, Riza Kapoor, Rahul Keenan, Jeremy Kilde, Rasmus Kolehmainen, Samuel Kopinski, Jakub Kumar, Sandeep Lambert, Jean-Francois Lamey, Tim Langham, Craig Langlois, Nicolas Lay, Simon Lee, Heather Lee, Kirk Leibbrandt, Gottfried Lentaigne, John Lewis, Christopher Li, Li Lim, Albert Lim, Kiat Seng Littner, Alex Loh, Boon Chye Lum, Michael Lytras, Wassilios Mackenzie, Rebecca MacNamara, John MacVay, Iain Maitland, Lady Olga Majmin, Lisa Mamour, Khaled Manchanda, Ravi Manian, Zaki Marques, Maria Silvia Bastos Martin, Francois Matsumoto, Motoo May, Theresa Meade, José Antonio Meléndez-Ortiz, Ricardo Mendoza, Luis Fernando Meylacq, Michel Moonen, Sam Mould, Alexander Munguia, Mauricio Murphy, Hannah Nolan, Paul Norris, Sean Novak, Alexander Ogata, Hikaru O’Mulloy, John Opuni, Stephen Otieno, George Pang, Patricia Pardey, Chris Partridge, Terry Patrone, Matteo Paul, Olivier Pedreira, Duarte Peña Nieto, Enrique Pham, Trieu Pierce, Terry Pojnar, Grzegorz Prowse, Philip Puccini, José Pugh, Thomas Racine, Georges Rah, Jae-Sun Ramachandran, Vivek Raza, Asif Renwick, David
2 8 85 35 12 16 90 4 12 9 2 46 81, 82 47 9 96-99 31 23 9 5 16 2 17 5 14 12 2 57 50-55 6 88 23 47 37 5 2 90 80, 82 61, 62 80-82 50-55 31 70 12 9 88, 90 75, 76 26-29 74 18 17 57 70, 75, 76 16 4 39 81 6 3 58 12 5 24 19 86 3 4 75 62 9 96-99 92 68 73 8 12 35 3 10
Ricke, Sadia Robson, Nick Rodriguez, Arnulfo Ross, Susan Rousseff, Dilma Roy, Michel Salmon, Christophe Salter, John San Suu Kyi, Aung Santana, Chris Santos, Juan Manuel Savin, Marius Schmand, Daniel Schmitt, Christian Schraven, Jorim Schreiber, Zvi Schulpen, Rogier Schulz, Martin Scotland, Patricia Seerapu, Shivkumar Sehgal, Sameer Sekak, Rachid Sengupta, Surath Serra, José Shah, Yawar Shahraini, Arash Silva, Paulo Cesar de Souza e Skou, Soren Solomon, Jonathan Sturgeon, Nicola Sullivan, David Suri, Ravi Swiecki, Bernard Swift, Stephen Szydlo, Beata Tait, Stuart Tandon, Sanjay Temer, Michel Tesch, Andreas Thomas, Jim Thurber, Anne Marie Thwaite, Paul Trudeau, Justin Trump, Donald Tucker, Freddie Tun Razak, Najib Turchyn, Oleh Turegano, Federico Turnbull, John Vallance, Michael van Bergen, Matthijs van de Wall, Arjan van den Hondel, Joost van der Hooft , Steven Van Trooijen, Robbert Verhagen, Thomas Vestager, Margrethe Videgaray, Luis Vincent, Jef Viry, Aurélien Vrontamitis, Michael Walli, Azim Wang, Gerry Welsh, Gordon Westlake, Colin Westrik, Jeroen Wight, Herbert Wilhelm, Stephen Wilmink, Marc Wilson, Lamar Wintermeyer, Lawrence Wu, Frank Wynne, Geoffrey Yang-ho, Cho Zavala, Luis Enrique
6 3 75 19 70 12 16 3 40 67 68 4 17 4 2 48, 49 3 85 16 12, 50-55 36 80-82 17 70 14 79 70 48 2 90 2 2 76 6 86 2 50-55 70 69 69 12 2 85 74, 76 19 39 96-99 3 3 12 10 9 10 10 48 24, 25 85 75 12 5 14 50-55 49 4 4 6 10 8 96-99 9 34 40 3, 18 46 76
November/December 2016 | 103
GTR events gallery
September 6-8, 2016 Singapore
911 Delegates attended
Trade & Infrastructure Finance Conference 2016
288 Delegates attended
October 5-6, 2016 London, UK
Mexico Trade & Export Finance Conference 2016
139 Delegates attended
October 20, 2016 Mexico City, Mexico
Upcoming events China Trade & Commodity Finance Conference 2016 November 22, 2016 Shanghai, China
Iran Trade & Export Finance Conference 2017 February 8, 2017 Tehran, Iran
GTR Africa Trade Finance Week 2017 March 9-10, 2017 Cape Town, South Africa
Nordic Region Trade & Export Finance Conference 2016 November 29, 2016 Stockholm, Sweden
GTR Mena Trade Finance Week 2017 Februar 12-14, 2017 Dubai, UAE
Malaysia Trade & Export Finance Conference 2017 March 14, 2017 Kuala Lumpur, Malaysia
Levant Region Trade & Export Finance Conference 2016 December 6, 2016 Beirut, Lebanon
India Trade & Export Finance Conference 2017 February 22, 2017 Mumbai, India
Turkey Trade & Export Finance Conference 2017 March 21, 2017 Istanbul, Turkey
GTR Asia Trade & Supply Chain Finance Conference 2017 April, 2017 Hong Kong Russia & CIS Trade & Export Finance Conference 2017 April 12, 2017 Moscow, Russia Latin America Trade Finance Conference 2017 April 27, 2017 SĂŁo Paulo, Brazil
For information about attending or speaking at GTR conferences please contact: Grant Naughton, marketing manager, at email@example.com or call +44 (0)20 8772 3013
104 | Global Trade Review