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Structured Commodity Finance, Techniques and Applications for Successful
Financing Arrangements, 2nd Edition
Description: This book discusses the techniques and applications of structured commodity finance within the range of financing alternatives available to the commodity sector. In particular, it endeavours to put discipline into a subject that has been extensively discussed by banking, insurance, capital markets and legal professionals, yet often with their own professional bias. This book will help you to understand the process of structured commodity finance and be able to apply it successfully to your next financing challenge. It is probably the most comprehensive book on SCF, both in terms of the techniques described and in terms of the number of case studies presented.
What are the main differences between the first edition published in 2003 and this new edition?
Compared with the 2003 edition, in terms of techniques this new edition puts more emphasis on borrowing-base type facilities. Variations from the basic pre-export financing and inventory financing are described in more details, including value-chain financing. The book also offers many new case studies to illustrate a wide range of possible variations from the core SCF techniques – and when they are best utilized. Securitisation also now gets its own chapter. The new 2014 edition also reflects the fact that some emerging markets have come to the forefront in terms of sheer financing volumes – for example owing to Chinese banks or to Latin American capital markets. The discussion also cover the Trade Facilitation schemes (in particular that of the IFC) that have surged since the mid-2000s to support economies depressed from the 2008 financial and economic crisis. The Basel accords get their own section. Finally, the 'applicable commodities' chapter has been rewritten to discuss in more details how certain techniques are applied in specific commodity sectors. What are the key benefits of the book?
- The book is intended to put some order into the wealth of existing structures by organizing them into simple categories and sub-categories, by explaining the structured commodity finance techniques in a very simple manner (supported by diagrams) and then by discussing variations from the core structures – and what advantages such variations can bring, when and why.
- The book uses dozens of case studies, illustrating the applications of the SCF techniques to meet the financing needs of all its potential constituents worldwide: for soft and hard commodities; trade or new investments; from SMEs to large multinational companies; trading companies as well as producers or processing companies, and so on. You are bound to find at least one case study that inspires you to find the right solution for your financing needs.
- The book is multi-disciplinary because 1. it presents structured commodity finance within the range of all financing solutions available to the company at stake– and regularly challenges the reader the evaluate which is the best financing solution for a particular situation, and 2. It is explains how SCF techniques can be merged with other techniques to strengthen the financial security package of the underlying finance transaction (eg, by buying a credit risk insurance to reduce payment risks of offtakers) or can eventually pave the way for the better-known SCF borrowers to raise funds on an unsecured basis.
What does the book cover?
Before discussing the various forms in which structure commodity finance can present itself, the building blocks of trade finance are reviewed. Understanding the role of more complex forms of letters of credit, forfaiting and factoring in financing trade is also essential. These issues are covered in Part I of this book. The basic techniques of structured commodity finance are presented in Part II. They include inventory financing and pre-export financing, the latter being further split between export receivables financing and prepayments. Other forms of structured finance applicable to the commodity sector, including
securitisation, are also discussed. As structures are evolving in the direction of using more third-party credit enhancement, Part III is dedicated to insurance and guarantees. The final part of the book presents the applications of structured commodity finance within the range of financing alternative available to the commodity sector.
Who should read this book?
Whoever is involved in the value chain of commodities finance, whether as fund provider or as a principal. This includes, on the lending side, commercial banks, forfaiting houses, investment banks, International Financial Institutions (World Bank Group, Regional Development Banks, etc.), Export Credit Agencies; and on the principal side, integrated oil & gas companies, agricultural commodities producers, international trading companies, mining companies, aluminium smelters. Law firms involved in international trade and project finance could also find it useful. Finally, policy makers might gather a new perspective to the side effects of some well-meaning policies, in particular with regards to foreign exchange regulations.
Contents: Preface Introduction
Evolution of commodity financing What is structured commodity finance? Scope
PART I TRADITIONAL COMMODITY TRADE FINANCE Introduction to Part I
Chapter 1 Building blocks of trade finance: payment methods Open account
Advance payment Documentary collection Documentary letters of credit Bank Payment Obligations (BPO) Chapter 2 Provisional
Basic trade financing instruments
Post-shipment financing based on letters of credit Trade paper
Contents Copyright
Pre-shipment financing for importers Pre-shipment financing for exporters
Evaluation of basic trade financing instruments Chapter 3 More advanced instruments and techniques Tailored letters of credit
Factoring and forfaiting, the fraternal twins Chapter 4 Evolution of traditional trade finance
PART II STRUCTURED COMMODITY FINANCE TECHNIQUES Introduction to Part II
Chapter 5 Inventory financing Principles and background Basic transaction flows Term sheet
Benefits of inventory financing Variations: financing the flow
Variations: ownership-based financing Limits of inventory financing material Chapter 6 Structured pre-export financing Principles and background
Term sheet
Benefits of structured pre-export financing Limits of structured pre-export financing
Chapter 7 Building on structured commodity financing techniques Revolving funding for the full production cycle
Value chain finance
Financing indirect exporters
Adapting a principal financing approach to trade finance
Using structured commodity finance techniques for imports into non-OECD countries Source: authors
Credit enhancement tools
Alternative assets for financing the commodity sector Balance-sheet and income statement enhancing structures Chapter 8 Countertrade
Existing forms of countertrade Evaluation of countertrade Chapter 9 Securitisation Principles Provisional Contents Copyright
Overview of commodity sector securitisation Trends in securitisation
Evaluation of commodity-linked securitisations Chapter 10 Due diligence
Components of the marketing cycle
Direct and indirect parties to the transaction Country risks
Structural considerations Chapter 11 Legal aspects Legal documentation Legal advice and opinion
Chapter 12 Evaluation of structured commodity finance techniques Providing attractive financing in difficult situations
Supporting access to longer-term financing Supporting international trade
Improving emerging markets economies material
THIRD-PARTY CREDIT ENHANCEMENT: INSURANCE AND GUARANTEES Introduction to Part III
Chapter 13 Insurance Political risk insurance Credit risk insurance
Chapter 14 Commodity price risk management Fixing export prices or establishing floors Linking interest rates to commodity prices Subsidising interest rates
Evaluation of commodity price risk management Chapter 15 Guarantees
Contractual bank guarantees Wrapping guarantees Bank credit guarantees Credit derivatives
Evaluation of guarantees Chapter 16 Provisional
Insurance and guarantees from ECAs Definition and overview of ECAs Main tenets of the OECD Consensus Regional ECAs - Afreximbank Contents
Copyright
Application to structured commodity finance Evaluation of ECAs
Chapter 17 Insurance and guarantees by other official entities Government-supported insurance and guarantees
The World Bank Group Regional development banks Trade facilitation programmes
Evaluation of other official providers of insurance and guarantees Part III Conclusion
Introduction to Part IV – Applications
Chapter 18 The long-term financing needs of the commodity sector Equity funding
Debt funding
Corporate versus transaction-based investment financing Chapter 19 Applicable commodities
Hard commodities (natural resources)
Soft commodities (agricultural commodities) material Other commodities
Chapter 20 Sourcing trade and equipment finance Commercial partners
Banks
The Basel Accords and structured commodity finance Multilateral development bank funded facilities Investment funds
Chapter 21 Islamic banking General principles
Main instruments, as applied to the commodity sector Conclusion
Chapter 22 Part IV - Conclusion PART V FINAL NOTES
Chapter 23 FINAL NOTES Provisional
Contents Copyright material
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