Structured Commodity Finance – A 3-day Course Available for Delivery In-house

Course Overview:

Trade Finance remains the engine at the heart of global economic growth with China the most important participant. Commodity Finance sits at the heart of this trade dominated by oil and gas which according to some estimates, accounts for as much as 70% of all commodity trade.

Trading in commodities often involves dynamic and fast-moving commodity markets, often with counterparties in emerging market territories. Risk mitigation and the ability to swiftly devise structures to make available financing of transactions are keys to success.

Whilst ongoing innovations and technological developments make the market more transparent this can be a high risk area for the uninitiated or unprepared. As a commodity banker, trader or even a producer, a flexible and creative approach, balanced by an appropriate degree of caution, will minimise risks.

This course will highlight the key concepts involved in commodity trading with elements drawn from real situations. It will also cover liquidity issues and lightly traded commodities.

Course Methodology:

An interactive workshop style course with the presentation of general principles supported with case studies and discussions.

Course Content:

Introduction

• What do we mean by structured trade
• What is commodity finance
• Categories of Commodities
• Commodity Pricing – Volatility
• The exchanges and their influence
• The rise of techniques to manage risk
• Participants
• Current Trends

The Markets

• The softs.
• Oil & Gas
• LME
• The grain markets – the meat markets and the tropical markets in coffee , cocoa, sugar, etc
• Biofuels.- Ethanol
• New participants in the market
• Over / under supply
• Traditional hedging techniques
• The availability of data and access to the markets
• The concept of price insurance
• Electronic platforms.
• The rise of the indexes
• Exchange Traded Funds

Emerging Markets

• The risks
• Political & Economic Risks and mitigants
• Performance and operational risk and mitigants
• Credit & Bank risks and mitigants
• Price Risk
• IForged, fraudulant or illegal contracts
• Documents of title
• Markets & Players
• Risk analysis of a commodity transaction
• How structured approaches assist
• What is “good” collateral

Pre-Finance

• The risks relating to grower/producer finance
• Green Clause Credits
• Red Clause Credits
• Ownership issues
• Licenses, export quotas, foreign currency controls
• Problems with non delivery
• SBLC’s
• Prefinance versus prepayment
• Limited Recourse v unlimted recourse

Key Documentation as a Risk Mitigant

• Transport documents
• MMTD & BoL’s
• Documents representing goods
• Title, negotiability, endorsement
• Incoterms
• Charter-party contracts and contracts of affreightment
• Voyage time and trip transfers
• Shipper/chartererer and vessel owner obligations
• Loading & discharge of cargo

Financing Commodities

• Commodity contracts
• Risk analysis of commodity flows
• Risk analysis of key parties
• The importance of document control – “follow the doggy!”
• Logistics & the value chain

Structures

• Pre-export finance
• L/C, SBLC and other structures
• Tolling
• Inventory finance & CMA’s
• Asset backed finance
• Countertrade structures

Risk Management

• Risk mitigation
• Exchange traded commodities
• Links between cash & futures markets
• Delivery to and from terminal markets
• Cash flow acceleration
• Off balance sheet considerations
• Countertrade structures
• Problems with MMTD transactions

Warehousing

• Asset backed structures
• The business case for warehousing
• Warehouse receipts
• WRF structures
• Raing finance against warehouse backed securities
• Problems with pledges over inventory, physical disposession
• Legal requirements
• Fraud, misrepresentation and similar issues
• WH receipts – a document of title, or just a receipt
• Risk mitigation

Collateral Management

• Liability of collateral managers
• Collateral Management Agreeement (CMA)
• Negotiating CMA documents
• Reviewing components of the CMA
• Tolling finance
• Performance and country risks
• Non-delivery issues/problems
• Financiers priorities
• Insurance solutions

Insurance

• Marine insurance
• ICC/A/B/C contingency cover
• Security – assignement v loss payee
• Political and country risk
• Contract frustration
• Asset confiscation
• Credit insurance
• L;egal problems
• Breach of warranty
• Failure to act appropriately to mitigate insured losses (acting as if uninsured)

Price Risks

• Chinese influence
• Price risk management
• Price discovery exchange
• Traded versus OTC
• Cash and futures markets
• Contracts to hedge
• Bank v customer requirments/benefits

Mining Finance

• Concept of the business
• The cost to bring to market semi-finished material
• Inhospitable locations
• Financing new mines
• The lead/lag time for production
• Technical developments and reworking older mines
• The issue of current and future price projections
• Trading issues, hedging
• Borrowing and Lending

Oil & Gas Finance

• The energy complexes
• Crude oil market
• Buying oil on Wall Street
• The role of the .majors
• The supply demand equation
• State intervention
• The exploration and extraction of oil
• Trading in crude oil.
• Heating oil and gasoline
• Gas market

LNG – Liquified Natural Gas

• The energy complexes
• The growth of the LNG debt market
• LNG liquefaction finance:
• LNG regas finance
• LNG ship finance
• Recent trends:
  • Financing of integrated LNG chains
  • Changing downstream markets and trading patterns
  • Increasing flexibility in LNG sales and financing contracts