Financing the next industrial revolution. Dan Marjanovic

Transcription

1 Financing the next industrial revolution Dan Marjanovic 30 November 2017

2 The Next Industrial Revolution We stand on the brink of a technological revolution that will fundamentally alter the way we live, work and relate to one another. In its scale, scope and complexity, the transformation will be unlike anything humankind has experienced before. Klaus Schwab, Founder & Executive Chairman, World Economic Forum (Jan 2016) 1

3 Technology as the enabler technology is... the means by which revolution takes place. The whole point about an industrial revolution is that it transforms the way the economy works, and in doing so changes society, uproots infrastructure, and alters how people live. Paul Donovan, Global Chief Economist, UBS Wealth Management 2

4 Impact of technological disruption 3

5 New Opportunities 4

6 Impact on Commodities Efficiency & Connectivity Transparency Derisk Fraud Derisk Sanctions AML/KYC De-risking 5

7 But.. remember.. Trade is an exercise in Documents and Physical Commodities 6

8 Tomorrow is NOW but. 7

9 An Update on Structured Letters of Credit Issues to watch out for Matthew Cox

10 CONVENTIONAL SUPPLY CHAIN CARGO CARGO SUPPLIER TRADER BUYER LC LC BANK BANK 9

11 STRUCTURED TRADE LC OFFSHORE BANK DISCOUNT LC CARGO CARGO CARGO SUPPLIER TRADER SPV BUYER LC (1) Application Application + Cash Collateral LC (2) Application BANK 360 DAY LC (3) BANK OFFSHORE ONSHORE BANK (1) & (2) True Trade LCs Method to effect Payment (3) Synthetic Trade LC Financing Emerging Market 10

12 WHY DO IT? Trader: Charge Fees - No interruption of physical trade flows Onshore Bank: Cash collateral now pay LC in 360 days = FUNDING Offshore Bank: Normal trade finance business 11

13 NEW YORK CASE: Fortis Bank (Nederland) N.V. v Abu Dhabi Islamic Bank (2010) 360 Day USD 40 million LC BAHRAIN Bank ISSUING BANK ADIB CONFIRMING BANK Trader BENEFICIARY FORTIS NEGOTIATING BANK Judgment: Upheld principle of independence of LC from underlying transaction Being novel and usual is not same as being fraudulent All parties understood nature of transaction JUDGE: NO FRAUD, CONFIRMING BANK MUST PAY LC 12

14 DEFAULT CASE STUDY: KAZAKHSTAN 2008 Kazakh Banks borrowed USD 45 Billion foreign debt Global financial crisis erupted Systemically important banks Government enacted new legislation: Limited creditors ability to litigate Limited creditors ability to block restructuring ²/ 3 rd of creditors threshold Imposed haircuts Debt for equity swaps Trade Finance Debt strict criteria for Trade Finance to be unimpaired in restructuring 13

15 DEFAULT CASE STUDY: KAZAKHSTAN 2008 SUPPLIER GOODS BUYER International Bank International Bank True Trade LC SUPPLIER GOODS Structured LC OFFSHORE KAZAKHSTAN Alliance Bank IMPORTER Alliance Bank Result: Structured LCs lumped in with True Trade LCs 14

16 STRUCTURED TRADE LETTER OF CREDIT Very useful & quick funding for Issuing Bank Why would Issuing Bank challenge it? Is it trade debt? Is it true trade debt? Is it working capital and does it matter? An LC is an LC is an LC You and your counterparties need to understand nature of transaction 15

17 Contact Details Dan Marjanovic Partner Simmons & Simmons JWS Pte Ltd T: M: E: Matthew Cox Partner Simmons & Simmons JWS Pte Ltd T: M: E:

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