Structured trade finance export of wheat


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Structured Trade Finance - Export of Wheat

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Structured trade finance export of wheat

  1. 1. STRUCTURED Trade Finance – EXPORT of WHEATPlayersKorea Trading Corporation (KTC), Pyongyang, North KoreaKamal Kunj (KK), New Delhi, IndiaMalik Finance (MF), Mumbai, IndiaMalik Impex (MI), Mumbai, IndiaFood Corporation of India, Mumbai, IndiaKoryo Commercial Bank Ltd., Pyongyang, North KoreaDeutsche Bank, Frankfurt, GermanyStandard Chartered Bank, London, UKICICI Bank, Mumbai, IndiaRoleKorea Trading Corporation (KTC): They are North Korea based importer ofWheat and the SBLC openerKamal Kunj (KK): They are India based agent of the buyer and jointbeneficiary with Malik Finance of SBLC and joint executor of exports alongwith Malik ImpexMalik Finance (MF): They are beneficiary of SBLC along with Kamal KunjMalik Impex (MI): They would export the wheat and execute the transactionalong with Kamal KunjFood Corporation of India (FCI): They will sell the wheat to Malik Impex forcash/cheque to be paid prior to taking the wheat (as per specifications) fromFCI godownKoryo Bank: They will open the SBLC on behalf of KTCDeutsche Bank: They will add their confirmation to the SBLCStan Chart: They will lend against the SBLC and remit the entire proceeds toICICI BankICICI Bank: They are India based banker of Malik Finance, which will pay offFCI and other related agencies and also open a Performance Guaranteefavouring FCI on behalf of Malik FinanceFinancial Instrument: Standby Letter of CreditTenor: 365 DaysCommodity: Milling Grade WheatQuantity: 487800 MTShipment: 25000 Х 19 + 12800Port of Shipment: JNPTPrice: Euro € 205 PMT CIF North Korea.Total Amount: € 99,999,000 =00Author: Partho H. Chakraborty 1
  2. 2. STRUCTURED Trade Finance – EXPORT of WHEATTime Frame 1. 15 Days for FCI to transport the wheat to JNPTSecurity: 1. SBLCRequirement: 1. Beneficiary has to pay FCI by cash or cheque prior to delivery of wheat. ICICI bank will have to pay FCI on behalf of Malik Finance. 2. ICICI Bank will also have to pay other charges such as Freight, Insurance, etc. 3. ICICI Bank will have to give a Performance Bond to FCI for ` 260 MillionTransaction:This transaction has 2 legs. The first leg is to pay FCI & other parties and alsogive FCI a Performance Guarantee on behalf of Malik Finance and thesecond leg is to send the bills to KTC after exports have been made 1. KTC, MF and KK enter into a Contract whereby the KTC will buy the wheat as per specs, MF will finance the transaction and KK will be the joint financer with MF and joint executor with MI 2. MI and KK enter into a Contract where MI will procure the wheat and export it to KTC and KK will make payments to all parties concerned and also arrange the shipping part of the transaction 3. MI & KK and FCI enter into a Contract whereby FCI allots the wheat to MI and KK against advance payment and performance bond. 4. KTC opens a SBLC confirmed by Deutsche Bank favouring MI 5. MI requests his banker Standard Chartered Bank to raise funds against the SBLC. Alternately even ICICI Bank can raise funds against the SBLC 6. Stan Chart keeps SBLC as security and remits funds to ICICI Bank 7. ICICI credits Malik’s account but will not allow him to use the funds directly. ICICI Bank will directly pay off to FCI and other agencies prior to each shipment and release the balance amount after each shipment 8. ICICI Bank gives FCI a Performance Guarantee on behalf of MI 9. ICICI Bank pays to FCI for the first tranche of wheat. Likewise they will make 20 such payments. 10. ICICI Bank will also pay for shipping, insurance, freight, etc. 20 times 11. FCI will transport the wheat up to the port (JNPT) 12. MI exports the goods to KTC and submits documents to ICICI Bank 13. ICICI Bank forwards the documents to KTC 14. ICICI Bank deducts its charges and releases the balance to MF. This process would be repeated 20 times 15. KTC receives the wheat in North Korea 16. Transaction EndsAuthor: Partho H. Chakraborty 2
  3. 3. STRUCTURED Trade Finance – EXPORT of WHEATIndicative Cost:Earnings: ICICIS.No. Particulars Rupees (`) 1. Export L/C Advisory Fees (Flat Fee) 1,000=00 2. Performance Guarantee Charges (1% Flat) 26,00,000=00 3. Management Fee @ 0.25% of € 99,999,000 =00 (Flat Fee) 1,31,24,868=75___________________________________________________________________ TOTAL 1,57,25,868=75Net Earnings: ICICI Bank: ` 1,57,25,868=75Receipts: Overseas Bank and AssociatesS.No. Particulars EURO (€) 1. Funding Costs - Euro LIBOR (2.26%) + 75 Basis Points P.A. 3,009,969=90 2. Commission (1.25% Flat of € 99,999,000 =00) 1,249,987=50___________________________________________________________________ TOTAL 4,259,957=40Net Earnings: Overseas Bank and Associates: € 4,259,957=40Receipts: UTLS.No. Particulars EURO (€)1. Reimbursement of SBLC 99,999,000 =00___________________________________________________________________ TOTAL 99,999,000 =00Payments: UTLS.No. Particulars EURO (€) 1. FCI 51,102,857=14 2. All Other Costs – Railways, Freight, Insurance, etc 27,772,000=00 3. ICICI Bank 299,540=36 4. Overseas Bank and Associates 4,259,957=40 5. Other Charges 12,000,000=00 TOTAL 95,434,354=90Net Earnings: UTL: € 4,564,645=10Note: 1. The Exchange rate is taken at 1Euro = ` 52.50 2. All other costs such as Courier charges, SWIFT, etc. at actualsAuthor: Partho H. Chakraborty 3
  4. 4. STRUCTURED Trade Finance – EXPORT of WHEAT Flowchart Korean Port, 24 Korea Trading 4 Koryo Pyongyang, Corporation, Commercial Bank North Korea Pyongyang, 23 Ltd., Pyongyang, North Korea North Korea 5 1 22 1 Malik Finance, Mumbai, India Deutsche Bank, 8 Standard Frankfurt, Chartered Bank, Germany London, UK 9 7 10 6 8 9 ICICI Bank, Mumbai, India21 12 1 1 11 14 20 15 12 Kamal Kunj, New Malik Impex, Mumbai, India Other Delhi, India 2 16 Agencies – Shipping, Insurance, etc 19 3 13 JNPT, Nhava Sheva Food Corporation of 18 17 India, Mumbai, India Note: FCI will deliver the wheat to JNPT Author: Partho H. Chakraborty 4
  5. 5. STRUCTURED Trade Finance – EXPORT of WHEAT Table. STEP DAY EVENT NO. NO. 1. 1 Tripartite Agreement between KTC, MF and Kamal Kunj 2. 2 Bipartite Agreement between MI and KK 3. 3 Contract between MI and FCI 4. 4 KTC requests Koryo Bank to open SBLC 5. 5 Koryo Bank opens SBLC and sends it to Deutsche Bank for Confirmation 6. 6 Deutsche Bank sends SBLC by SWIFT to ICICI Bank after adding their Confirmation 7. 7 ICICI receives SBLC and intimates MF 8. 8 ICICI sends the SBLC to Stan Chart for payment 9. 11 Stan Chart checks the authenticity of SBLC and then makes the payment 10. 12 ICICI receives payment from Stan Chart and intimates MF 11. 13 MI requests ICICI to pay FCI 12. 14 ICICI pays FCI 13. 14 FCI gives receipt to MI 14. 15 MI requests ICICI to pay for Shipping, Freight, Insurance, etc. 15. 16 ICICI pays for Shipping, Freight, Insurance, etc. 16. 16 All relevant agencies give their bills to MI 17. 30 The Wheat from FCI reaches JNPT 18. 31 The Wheat is loaded on to the Ship 19. 37 Bill of Lading is given to MI 20. 38 All Documents given to ICICI Bank 21. 39 The ship with Wheat sets sail for North Korea 22. 40 ICICI forwards the documents to Koryo Bank 23. 45 Koryo Bank forwards Documents to KTC 24. 61 KTC collects the Wheat 61 TRANSACTION ENDSNote: 1. Point 8 & 9 indicate that either ICICI Bank approaches a bank like Stan Chart or let Malik arrange it with their overseas counterparts to get funds against it 2. If the overseas bank raises funds, then they may keep it and disburse the same to ICICI bank on specific instructions from ICICI BankAuthor: Partho H. Chakraborty 5
  6. 6. STRUCTURED Trade Finance – EXPORT of WHEATNote: Names, if any are Suggestive and are strictly not to be taken on Face Value. It is only to give a feel and touch of how transactions can be structured and names are indicative This article is meant for education purposes only and it is not be reproduced for any commercial purpose by print or electronic medium whatsoeverThis case study is written by:Partho H. ChakrabortyA - 305, DSR Spring Beauty Apts., 124/1, ITPL Main Road, Brookefields, Kundalahalli,Bangalore - 560 037, IndiaTel: +91 80 420 50293, Cell: +91 99863 22504email:; parthohc@rediffmail.comSkype: parthohc01Author: Partho H. Chakraborty 6