Treasury Services What Matters Today: How Structured Trade Finance Supports the Global Economy Astar Saleh Global Head of Structured Trade Finance J.P. Morgan June 16, 2009
Agenda I Structured Trade Overview II Market Update III Structured Trade Solutions IV ECA Solutions 1
J.P. Morgan Structured Trade Finance STF Overview J.P. Morgan is a global leader in providing short, medium and long term financing solutions for individual or pooled trade transactions, by leveraging on its market leading capital raising and risk mitigation capabilities. Structured trade solutions go beyond classical trade finance off-the-shelf products to bring a customized value to larger, more strategic transactions and broader segments of the value chain. J.P. Morgan develops innovative solutions using both the credit and capital markets that enables customers to obtain cost effective financing, increase sales and mitigate risk in order to improve bottom line returns. Selected Solutions Syndicated Medium and Long Term Trade Related Loans Bilateral and Multilateral Agency Backed Finance Private Sector Insurance Secured Receivables Finance Project Related Finance Structures Limited Recourse Export-Backed Finance Supplier Driven Medium and Long Term Finance Structures Silent Trade Payment Guarantee 2
The J.P. Morgan Global Structured Trade Finance Group Global Structured Trade Finance Group is uniquely positioned to provide integrated financing and working capital solutions Global Structured Trade Finance Group is uniquely positioned to provide integrated financing and working capital solutions Export Export Finance Finance Import Import Finance Finance Supply Chain Financing Receivables Financing CLIENTS Pre-Export Financing Transaction Risk Coverage Global risk mitigation I strategic advice I unmatched execution I transparency and thought leadership Ex-Im Bank, OPIC, Ex-Im Bank, OPIC, and other ECA and other ECA Structures Structures Bank Distribution Bank Distribution Syndications & Syndications Private Credit Private Credit Insurance PRI Insurance & PRI Capital Markets Capital Markets Structures Structures Derivative Derivative Instruments Instruments The J.P. Morgan Global Structured Trade Finance Group can tailor financing structures to offer a complete solution for clients 3
Agenda I Structured Trade Overview II Market Update III Structured Trade Solutions IV ECA Solutions 4
Market Update Overview Recent Trade Environment Current credit environment has resulted in liquidity and balance sheet constraints across the industry Market consolidation and reshaping in the current environment has limited the number of lending institutions willing to lend at attractive rates Risk mitigation options such as distribution, insurance, and CDS are reflecting the market volatility and uncertainty limiting the hedging availability Due to market uncertainty and instability, corporate clients have shown an increase in demand for risk mitigation instruments such as guarantees and confirmations as well as for cost efficient transactions Example Issue Capital goods buyers are struggling to raise capital in the debt market due to liquidity constraints and increase in cost of funds, which consequently impacts their ability to either source new goods or perform under their payment obligations. Solution Buyers and Suppliers are working together with Export Credit Agencies and Lending Institutions to enhance the credit risk by shifting it to sovereign risk, in order to access cost efficient capital and longer repayment terms. Consequently, this has resulted in an increased demand for U.S. Ex-Im and Export Credit Agency financing in the market 5
ECA Financing Pricing Trends Overview Given the recent turmoil in the credit markets, historically high ECA premiums have become attractive once again when compared to market pricing curves, for example Brasil: Price Movements 4.5 4 3.5 bps over Libor 3 2.5 2 1.5 1 0.5 0 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Period CDS ECA Premium 6
Agenda I Structured Trade Overview II Market Update III Structured Trade Solutions IV ECA Solutions 7
Case Study: Importer Trade (Import) Financing Structure 3. At maturity Importer pays principal + interest due for 180 days 2a. Borrowing notice to syndicate agent (Copies of various shipping doc s presented as evidence of Imports Importer - Chile 1a. Signs Loan Agreement 180 days after disbursement day J.P. Morgan & Investors 15 days after shipment obligation to pay 1b. Oil Shipment Various Suppliers 2b. Direct Payment for oil at day 15 after shipment, total $145MM Overview Importer is looking to extend its current payment terms and obtain short term financing for its oil imports from various international suppliers Due to its large import volume put together financing which will allow Importer to pay their suppliers by drawing under the facility and obtain longer financing terms then available from the suppliers This transaction was syndicated among three additional banks in previous two facilities closed in 2008, for a total of $145MM 8
Case Study: Structured Trade Syndicated Loan National Oil Co (Buyer of Services) * Participating banks signs facility agreement directly with the Seller Participating Banks* 1. Drilling Services against AR Creation 4. Payment of Principal 3. Sold ARs against Funding 6. Payment of Principal + LIBOR + Applicable Margin 5. Payment of LIBOR + Applicable Margin Services Company J.P. Morgan Trustee & Sole book runner 2. Assignment of ARs against Funding 2008 Deal of the Year Overview Services Company is bidding for gas drilling services with a National Oil Company, which is a buyer of the services provided. The Contract will cover drilling works on 400 wells during a 3 ½ year contract term, and the Buyer is looking to extend its Payment Obligations for services rendered by the Services Company. Services Company ( The Seller ) primary objective is to sell Accounts Receivables ( ARs ) created from its drilling contract with National Oil Co. ( The Buyer ) The Buyer will review and approve invoices, and upon the Buyer s approval J.P. Morgan will purchase such accepted receivables and therefore fund the first draw down. J.P. Morgan s Facility is a commitment to buy AR s and will start after the contract execution, and created a Trade Syndication together with top tier international financial institutions to accommodate for the funding requirements. The Buyer will acknowledge and approve the Seller s assignment of created receivables in favor of J.P. Morgan and the syndication. Full security interest to be granted in Receivables, Escrow Account, and Reserve Account. The Seller will submit invoices that sum over U.S.$1BN. Due to the amortization schedule, maximum Syndicated Facility Amount is U.S.$600MM with a the total door-to-door program life of 7 ½ years. Due to the strength of the structure and highly profitable program, J.P. Morgan received oversubscription of investors to the syndicated facility in less then 2 months 9
Silent Payment Guarantee Description Description SPG is an instrument issued by JPMC in favor of pre-approved Sellers to guarantee against Buyer s failure to pay (exclusive of commercial disputes) after shipment is effected. Transaction Transaction Flow Flow Seller & Buyer sign Commercial Agreement (in the case of Buyer we will need the copy of the Purchase Order) Seller asks JPMC for Payment Guarantee coverage Seller and JPMC sign Payment Guarantee Agreement JPMC Payment Obligation towards Sellers does not cover the commercial dispute Seller Sales Contract Payment Obligation Buyer Payment Guarantee Key Key Client Client Benefits Benefits The payment guarantee will enable the seller to compete with other suppliers by securing their Financial obligations on their shipments on open account terms, which is in line with the market, as it will mitigate the underlying Financial and Political risk. 10
Agenda I Structured Trade Overview II Market Update III Structured Trade Solutions IV ECA Solutions 11
U.S. Ex-Im Guaranteed Loan Program Structure J.P. Morgan Ex-Im Bank Local Guarantors Guarantee Seller s Owners (If required by Ex-Im Bank) Loan Buyers Export Related A/R Seller Overview Flexibility as to interest rate basis (fixed Vs. floating) Involvement of financial institution introduces ancillary benefits in dealing with Ex-Im Bank as well as in deal structuring, negotiation of terms and conditions, implementation, and execution 100% Guarantee of principal and interest on eligible loan J.P. Morgan relationship with Local Bank allows for more efficient KYC process 12
Case Study: Co-Financing for Turkish Power Project Hungarian Sub Czech Company Payment Goods Delivered French Sub Canadian Company 2008 Deal of the Year Hungarian Eximbank Coface EDC Reinsurance GE Packaged Power Reinsurance U.S. Ex-Im Bank Payment Goods Delivered Guarantee AKSA Loan J.P. Morgan Parent Guarantee for Loan AKSA Parent Overview $99.7MM transaction. Ex-Im Bank, as lead ECA, negotiated re-insurance/counter guarantee agreements with Coface, EDC, and Hungarian Ex-Im Bank (which covered the Czech portion) Two tranches repayable over 10 and 12 years; 30% local cost financing Customized non-standard repayment profile. Unequal installments (bell shaped curve), reflecting cash flow generation, resulted in shorter average life and lower exposure fee Single loan agreement, 2 disbursement L/C s Most diverse co-financing done by Ex-Im Bank to date, and first with company unrelated to U.S. exporter. 13
Case Study: EDC Guaranteed Loan to Privatbank, Ukraine J.P. Morgan EDC 1c) EDC Bank Guarantee 1b) Loan 1a) Down Pymt of 15%, $18.5MM 3) Down Pymt $18.5MM Supplier Nortel 4) Equipment Borrower Privatbank 2a) $18.5MM 2b) $113.8MM, 85% Telesystems of Ukraine Overview J.P. Morgan, acting as arranger and lender, structured a long term EDC guaranteed loan and a down payment financing for Privatbank, who then on lent to Teleystems of Ukraine (TSU), on matching terms, for an equipment purchase of approximately $132MM from Nortel. J.P. Morgan provided initial 2 year down payment financing of the $18.5MM, as well as 8 year door-to-door financing of $113.8MM (7 years of repayment, 14 semi-annuals) for the remaining life of the deal. By far the single largest transaction ever concluded under EDC s bank guarantee program. On lending structure obviated the need for time consuming project finance and enabled commercial contractual timetables to be met. 2007 Deal of the Year Awards: Trade Finance, GTR, and Trade and Forfaiting Review 14
Case Study: Pemex Mexico Guarantee Processing 65 Separate for Loan numerous Disbursements purchase orders Ex -Im Bank $$ Loan $635 M Loan 19 350 U.S. U.S. Exporters Export Sales of Wafer Fabrication Export Sales Equipment of Oil & Gas Overview In June 2008, we were approached by Pemex to arrange a large Ex-Im Bank facility involving the processing of documentation related to a very large number of suppliers In August of 2008, we were mandated by Pemex; closing and funding occurred in September J.P. Morgan acted as the Arranger, Lender, and Documentation Processing Bank Tenor was 8 ½ years with a 6 month commitment period Our Government Agency Unit worked closely with Pemex s and U.S. Ex-Im Bank teams, and successfully reviewed and processed large volumes of export documents. 15 15
J.P. Morgan Structured Trade Finance Recent Awards» 2008: Best Bank in Structured Trade Best Trade Solutions Bank 2008: Reliance Industries Best Trade Solutions Bank 2007: Banco de ORO Best Trade Solutions Bank 2006: Aban (India) Best Trade Solutions Bank Chartered Semi- Conductor 2008 Deals of the Year: Aksa Enerji, Axiom Telecom, Weldy/Lamont/Ghana Deals of the Year 2008: Schlumberger / PEMEX 2007: Privatbank / Ukraine Telesystem Best ECA Trade Solution 2006: Chartered Semiconductor Best Structured Trade Solution 2006 Best Structured Trade Bank 2005 Best Structured & Trade Finance Bank 2006 Best Trade Services Bank 2005 Best Trade Services Provider 2004, 2005, 2006, 2008 Deals of the Year 2007: Privatbank / Ukraine Telesystem 2006: Aban 2005: Chartered Semiconductor Deals of the Year 2006: Aban 2007: Privatbank / Ukraine Telesystem Most Innovative & Responsive Trade Services Bank 2006 Best Trade Services Provider 2005 16
Selected Agency Backed Transactions led by J.P. Morgan J.P. Morgan Transactions Company Description Company Description Advisor, Arranger, Facility Agent, Bookrunner, Security Large Latin American oil & gas company Mandated Trustee for a two tranche, 9 year $653MM Ex-Im Bank Arranger, Lender and Documentation Processing Bank for guaranteed facility for the Chartered purchase of US sourced an 11 year US $300MM U.S. Ex-Im Bank guaranteed facility semiconductor manufacturing equipment for Phase 1. 3 Deal involving m ultiple exporters of the Year awards in 2006 Arranger, Facility Agent, Bookrunner for a two tranche Arranger and and Lending Bank for a US $159MM US Ex-Im $610MM Ex-Im Bank guaranteed facility for Phase II (2007) Bank guaranteed loan for the purchase of 4 Boeing for the purchase of semi-conductor manufacturing aircrafts for Aviation Capital Group. Tenor 13 years door equipment to door Ukraine Sole Arranger and Underwriter for a 11 year US $400MM US Ex-Im Bank financing for the largest private sector enterprise in India Arranger and lending bank for a landmark US$132MM financing, 85% (8 year term), guaranteed by the Export Development Canada and 15% (2 year term) commercial loan facility for a telecommunication project. Three Deal of the Year Awards in 2007 Croatia Arranger / Lender for 100% US Ex-Im Bank guaranteed Cofinancing Facility in the amount of US $104MM that will support the sale of gas turbine generator packages and heat recovery system s from GE Power into Turkey Advisor, Arranger, L/C Bank for 14 year US $228MM US Ex-Im Bank guaranteed facility and 4 year US $75MM commercial loan for constructing a m otorway by Bechtel and US $85MM Ex-Im Bank financing for the installation of radar equipment Advisor & Arranger for landm ark 14 yr, $250MM financing using OPIC non-honoring of a sovereign guarantee insurance (developed and refined by JPM & OPIC Arranger and Lending Bank for a US $150MM US Ex-Im guaranteed Facility, August 2008 Arranger, Lender, and L/C Bank for a 2 tranche US Ex-Im Bank guaranteed co-financing facility, involving Coface, EDC, and Hungarian Ex-Im Bank. The 12 year facility financed GE power equipment, and totaled over US $99MM, 2008 Arranger/Lender/L/C bank for $37.9MM U.S Ex-Im Bank guaranteed co-financing facility involving EKF of Denmark. The 12 year facility financed multi sourced equipment sales to a Turkish power project, as well as selected local costs Tomskneft Arranged US Ex-Im Bank facility to finance a 195W gasfired power project (14 yr tenor, DM $124MM Advisor for $550MM in ECA and commercial financing for oil field development and refinery modernization. Arranger, Agent, Security Assignee, L/C bank for $230MM 10 year Ex-Im Bank guaranteed financing under the US-Russia Oil and Gas Framework Agreement (OGFA). Arranger, Agent, Secuity Assignee, L/C Bank for $109MM m ulti- ECA and commercial financing for com pressor stations. First transaction to close under OGFA. Provided integrated single bank solution to management of collateral flows. Euromoney Deal of the Year Uzbekistan Arranged US $246MM of commercial and Ex-Im Bank guaranteed financing. Single largest Ex-Im Bank transaction in Uzbekistan. First public sector borrowing to obtain sovereign guarantee Arranged medium term Ex-Im Bank guaranteed finacning to enable Russian mining company to make discreet equipment purchases to m ultiple US Exporters. Two transactions for Brazilian airplane manufacturer, using Ex-Im Bank and AIG, totaling US $330MM Mandated arranger and lender for landmark financing for purchase of railway maintenance equipment of which US $120MM is Ex-Im Bank guaranteed for 13 yrs. First transaction under US China long term framework agreement Arranger, Agent, Security Assigned, L/C Bank for US $90MM in Ex-Im Bank guaranteed financing under US Russia Oil and Gas Framework Agreement Advised and arranged over US $1.9BN of Ex-Im guaranteed financing for the purchase of Boeing aircrafts 17
Contacts Astar Saleh Global Head Structured Trade Finance Email: astar.saleh@jpmorgan.com Telephone: 212-552-3451 Adeline Kow Executive Director, STF Asia Email: adeline.sm.kow@jpmorgan.com Telephone: (65) 68827066 Marguerite Gill Vice President, U.S. Ex-Im Bank Program Manager Email: marguerite.gill@jpmchase.com Telephone: 212-552-4190 Lori Helmers Executive Director, Commercial Bank Structured Trade Email: lori.r.helmers@jpmchase.com Telephone: 512-479-5454 Luis Noriega Vice President, Commercial Bank Structured Trade Email: luis.m.noriega@jpmchase.com Telephone: 214-965-3631 Randy Mascorro Vice President, Commercial Bank Structured Trade Email: randall.mascorro@jpmchase.com Telephone: 214.965.3632 Jovan Petrovic Vice President, STF Latin America Email: jovan.b.petrovic@jpmchase.com Telephone: 212-552-3011 Eric Ponzio Vice President, STF WHEM Email: eric.ponzio@jpmorgan.com Telephone: 212-552-7722 Patrick Gang Analyst, Structured Trade Finance Email: patrick.x.gang@jpmchase.com Telephone: 212-552-3986 18
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