What is structured trade and commodity finance (STCF)?
The Wikipedia definition of STCF is:
‘Cross- border trade finance in emerging markets where the intention is to get repaid by the liquidation of a flow of commodities’.
However, this is a rather dated assessment, written in the last millennium and published in 2001. It also dates from before Basel II and before the Financial Crisis. The definition varies across banks, commodity producers and traders and lately, the investor community that has witnessed the development of this asset class in the last ten years.
Synthesis’ defines its business model as the financing of well-defined sale and purchase transactions that are independently evaluated with a set of strict criteria. Our approach is that STCF only works on the basic principles of a commoditised, highly liquid products being contracted between recognisable counterparts within a plausible transaction pattern and investment grade payment risk mitigation. Simple.
Abiding by these simple principles, Synthesis stands to differ from looser STCF offerings that have led to the demise of several once erstwhile financiers in the field. The recent tumultuous history of this centuries-old art of financing commercial exchanges is not to be repeated. The big opportunity for STCF is to rise to the challenge of not just mitigating the traditional targets of credit risk, market risk or country risk, but also to address the new focus on non-financial risk, with possibly the best solutions available to any form of investment.
STCF has always been about knowledge. Synthesis aims to be epitome of it.