By John MacNamara
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Additional info for Structured Trade and Commodity Finance: What Can Go Wrong and How to Avoid It
4. Oil delivered. 5. Commodities delivered to Commodity Trader/Offtaker. 6. Receivables flow back from commodity trader to Bank (offshore cashflow). 7. Residual value of commodity receivables after debt service flow back to local exporter. Note that the transaction is embodied in a general countertrade agreement or quadripartite agreement, and that state ownership provides linkage between local exporter and local importer. 33 STRUCTURED TRADE AND COMMODITY FINANCE IN EMERGING MARKETS STOCK/INVENTORY FINANCE Definition Stock finance is used here to mean the finance of goods in store at some mutually acceptable location.
The offtaker, however, plays a very important role in the success of the transaction and should be a credit enhancement (see Sidanko below as a case study compared with Graincoop Eximcoop). Applying these headings to our case studies, we can see that perhaps surprisingly none of them ran into trouble because of political or market risks, although both were clearly aggravating environmental events. Payment risk should be the least of our worries (although, as we will see, opinions are divided as to how payment risk should be covered).
The deal was brought to the bank by an existing offshore trading company, which wanted finance of the goods in-store while it sought a buyer in a nearby export market (Brazil). The trader was of insufficient financial strength on its own to present an acceptable payment risk. The ultimate aim was to sell the goods against a third party Brazilian bank L/C which would be acceptable to the financing bank. 34 TYPICAL STRUCTURES Warehouse Future offshore hard currency buyer 5. Future exports 2. Warehouse warrants 6.