Trade Finance Funding Opportunities For Third Party Investors

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Synthesis Structured Trade and Commodity Finance

What is Structured Trade Finance?

Structured trade finance is where a finance company funds a transaction on behalf of a third party. In our case we achieve this by directly purchasing the goods from their supplier and then selling the goods directly to their purchaser, instantly removing a substantial portionof the creditrisk.

The advantage for investors is that trade finance portfolios :

  • Are self-liquidating

    Trade finance transactions are typically 30-60 days so there is a clear exit path for the funder. It also allows funders to quickly reduce exposure to borrowers, sectors and geographies
  • Have strong returns

    Typically trade finance transactions have very strong returns due to the short tenor. By efficiently keeping money deployed, this can be converted to strong annualised returns
  • Have strong security

    The funder generally has direct ownership or a charge over the assets being financed as well as access to a Letter of Credit or Credit Insurance
  • Have low default rates

    Historically, structured trade finance transactions have very low default rates and very strong recovery rates, thanks tothe strong asset security
  • Self-Liquidating
  • Strong Returns
  • Enhanced Security
  • Low Default Rates
Structured Trade Finance in numbers
$6 trillion
WTO Member Exports per year

Despite global economic uncertainty, global trade continues to grow year-on-year as globalisation continues

>50%
SME share ofthat trade

SMEs continue to globalise, moving their goods in greater size, across greater distances

80%
Of the SME share requires trade finance

However, as deliveries take longer, SMEs turn to trade finance to bridge the cashflow gap between production and payment

0.02%
Is the historical default rate

According to the International Chamber of Commerce Report in 2011, default rates in trade finance stood at around 0.02% - better than investment gradebonds*

ProductTotal Exposure($mio)Total DefaultedExposure ($mio)Exposure-weighted Default RateTransaction Default Rate
Export L/C988,4342350.02%0.01%
ImportL/C1,656,5281,2100.07%0.08%
Performance Guarantees1,023,5611,1540.11%0.17%
Loans forImport/Export3,154,4075,3230.17%0.22%

Why is there an opportunity for investors in Structured Trade Finance?

With the phased implementation of Basel III and tighter lending criteria from banks, many SMEs have lost access to the funding that they previously had.

Banks are reducing exposure due to

  • High regulatory costs of capital
  • Out-dated technology and KYC infrastructure
  • A reluctance to lend on a transactional basis

The Global Financial Crisis created a gap

With banks less willing to lend to SMEs an opportunity has been created for smaller, more nimble financial organisations to enter the market.

Using a combination of experience and understanding of global trade flows, a new breed of trade finance houses is emerging who can lend based upon assets, increasing security whilst maintaining strong returns.

How do we choose our clients?

Here at Synthesis, a large part of our success within the group comes from working exclusively with borrowers who have a strong track record in their industry. We look for a minimum of three years of successful trading by the management team and a strong business model with good margins across their product range.

Deal selection

In Structured Trade Finance the key to a successful portfolio is not just to choose the right counterparties, but also to select the deals with the right characteristics. Each commodity has its own idiosyncrasies, but in all transactions we seek verification of the value of the goods and will, where possible, take a charge over the goods. In the event of non-payment, we would liquidate the assets, hence our preference for non- perishable, generic commodities.

Underlying asset

The underlying asset must be something that we can take control of, check the quality of and re-sell if necessary. It is always non- perishable

Credit Enhancement

The transactions that we finance are always backed by a Letter of Credit or Credit insurance from an investment grade counterparty, or by alternative arrangements ensuring prompt and secure payment by the customer (performance bonds, payment guarantees)

Loan-to-value

Typically we look at a “real” valuation of the asset in terms of what price it can be sold at in a variety of jurisdictions

Monitoring

Are we able to identify, monitor and exercise control over the asset at any point during the transaction?

Our Strategy: Risk Mitigation

RISK FACTORRISK MITIGANT
Risk of non-paymentSynthesis only lends to companies or management teams with a significant track record in the relevant commodity
Both the arranger of the deal and the debtor are required to pass our KYC process
Each transaction will have in place a Letter of Credit or Credit Insurance to act as a safeguard"
Risk of rejection of goods"Goods are checked for quality where necessary and certified by an independent inspector before the transaction is funded
Country RiskIn conjunction with leading trade finance law firm Watson Farley & Williams, Synthesis – Structured Commodity Trade Finance Limited continually monitors any potential risks, in particular those relating to currency restrictions, sanctions or embargoes"
Commodity Price RiskSynthesis – Structured Commodity Trade Finance Limited does not engage in transactions where the return is in any way linked to the price of the underlying goods. Each transaction will have a sales contract at a pre-agreed price so that the return is fixed
In the event of non-payment by a borrower, Synthesis -
Structured Commodity Trade Finance Limited would first look to enforce the terms of the contract. It would then seek to sell the commodity to another buyer. It is only after that that they would seek recovery through the Letter of Credit or Credit Insurance. By concentrating on fungible, hard commodities, the risk of depreciation of the asset is minimised"
Risk of Documentary FailureFacility Documentation is arranged by WFW and all transactions are documented by experienced professionals"

Worked Example

Purchase cost of the goods : USD100 Contribution by the Client : USD10 Contribution by Synthesis :USD90

Sales Revenue of the goods : USD105 Returned to Synthesis : USD92 Returned to Client : USD13

Marine Insurance during transit : Typically 110%of purchase price (USD110) with Synthesis as first loss payee

Credit Insurance before payment : Typically 90% of sale price (USD94.5) with Synthesis as first loss payee (note our exposure is only USD90)

Credit Support Providers approved by Synthesis – Structured Commodity Trade Finance Limited

Unless specifically requested by the Investor, our transactions always receive either an LC or credit insurance from one of the following banks or insurers, all of whom are investment grade :

✓Abu Dhabi Commercial Bank PJSC✓Industrial Bank of Korea
✓Agricultural Bank of China Limited✓ING Bank N.V.
✓Australia and New Zealand Banking Group Limited✓JP Morgan Chase Bank N.A.
✓Atradius Credit Insurance N.V.✓Korea Development Bank
✓Bank of China Limited✓Lloyds Bank Plc
✓Bank of Communications Co., Ltd✓Lloyds of London Insurance Syndicates
✓Bank of Nova Scotia✓Malayan Banking Berhad
✓Banque Cantonale Vaudoise✓National Australia Bank Limited
✓Barclays Bank Plc✓National Bank of Abu Dhabi PJSC
✓Bayerische Landesbank (Bayern LB)✓National Bank of Kuwait S.A.K.P.

Credit Support Providers approved by Synthesis – Structured Commodity Trade Finance Limited (...continue)

Unless specifically requested by the Investor, our transactions always receive either an LC or credit insurance from one of the following banks or insurers, all of whom are investment grade :

✓BNP Paribas✓Norddeutsche Landesbank Girozentrale
✓China Construction Bank✓Oversea-Chinese Banking Corporation Limited
✓Citibank N.A.✓Qatar National Bank S.A.Q.
✓Coface S.A.✓Royal Bank of Canada
✓Coöperatieve Rabobank U.A.✓Santander UK plc
✓Crédit Agricole S.A.✓Skandinaviska Enskilda Banken AB
✓Credit Suisse AG✓Société Générale S.A.
✓CTBC Bank Co., Ltd.✓Standard Chartered Bank
✓DBS Bank Ltd✓The Toronto-Dominion Bank
✓Euler Hermes S.A.✓UBS AG
✓Export-Import Bank of Korea✓Unicredit Bank Austria AG
✓Garant Versicherungs AG✓United Overseas Bank Limited
✓Hang Seng Bank Limited✓Wells Fargo Bank N.A.
✓HSBC Bank Plc

Third-Party Investment Structure

SSTCF provides all of the legal and transactional structure, simply requiring the Third Party Investor to select transactions to fund. This allows the investor to fund transactions based around their own liquidity and

Management


John MacNamara

Chairman & Chief Risk Officer

Mac has assumed executive and senior management positions in the commodity trading and financing industries since 1982. Over the course of the last 20 years, he has built Deutsche Bank’s global Structured Commodity Trade Finance franchise, a multiple- year “Best Structured Commodity Trade Finance Bank” award-winning business by various industry publications, leaving his position of Global Head and Vice Chairman at the end of 2019. Prior to joining Deutsche Bank, Mac headed Structured Trade and Commodity Finance at Santander Central Hispano and before that Bayerische Hypo-und Vereinsbank. Based in London, he is involved in a number of industry-wide initiatives, amongst others as the Chairman of the London Trade Roundtable that provides thought leadership in international trade finance, the advisory board of Global Trade Review and Trade & Forfaiting Review to which he regularly contributes. Mac’s publications include the Elsevier-published “Structured Trade & Commodity Finance: What Can Go Wrong” - an in-depth guide to structured trade and commodity finance in emerging markets. Mac has an MA from Cambridge University and is retired officer of the Royal Marines.

Mac serves as the Chairman of the Board, overseeing Synthesis’ risk and control frameworks, risk appetite and holds decisioning authority on all investment opportunities entering the securitisation programme.

Management


Dr. Tasneem Krueger-Vally

Managing Director & Head of SCTF

Tasneem has 15 years of experience in structuring and executing complex financing for clients operating in the natural resources and commodities sectors; 7 years of risk management experience and 5 years of consulting experience. At Deutsche Bank, she closed more than 60 transactions in 7 years driving revenues and business growth globally which led to her being awarded Top Dealmaker, two years successively by TXF. In her time at Deutsche Bank she held senior roles of Head of Middle East & Africa, Structured Commodity Trade Finance (STCF); Head of Business Development, SCTF where she expanded the SCTF business into Australia, setting up and resourcing the Sydney office and was the Global Coordinator for Borrowing Base Facilities. Prior to joining Deutsche Bank, Tasneem was responsible for a c. AUD 4bn natural resources, oil & gas portfolio in the IB&M Risk Division (Sydney). She has also worked for Rand Merchant Bank in London after a successful career as a senior consultant for Alexander Forbes Risk Services (Johannesburg) where she managed projects across various industry sectors across the globe. She currently serves on the executive committee of the London Trade Roundtable. Tasneem holds a doctorate in Chemical Engineering and Masters in Business Administration.

Management


Spyros Papadopoulos

Founder, Chief Strategy Officer

Spyros has 22 years of experience in alternative investments. He began his career in Private Banking, first with Citigroup in London and Geneva and then with Société Générale in Athens. Spyros moved on from Private Banking in 2006 to set up an asset management company for Deloitte, before returning to London as a Director of the hedge fund Absolute Return Partners. In 2012, he launched the first Peer-to-Peer Lending Fund outside of the US, investing in consumer lending products. Since July 2014, his focus was on the then nascent asset class of packaged structured trade & commodity finance credit. In 2016 Spyros spearheaded the first structured commodity trade finance securitisation by a non-banking institution under the Synthesis name and has continued with the development of the business since. Spyros holds an Investment Management Certificate of the CFA-Society of the UK and is at the helm of Synthesis’ investor relationships as Group’s CSO.

Management


Matthew Edwards

Investor Relations

Matthew has over 27 years’ experience in financial services. He began his career with Tullet and Tokyo in the city of London in 1990 where he quickly established himself as a leading broker. Matthew worked for two other leading brokerage houses in London before moving to Athens in 1997. He was head of all foreign exchange activities for Sigma money brokers who under his guidance became the global benchmark for GRD brokerage. He has since acted as a business development consultant for ICAP London, BGC Partners and Cleaves Securities. Throughout his career Matthew has developed and managed key client relationships and maintains strong relationships with banks, brokerages and private equity firms.

Management


Jose Antonio Fernandez

Director

He has over 14 years’ experience in M&A, focus on Financial Institutions Group, (FIG), having participated in several transactions, among others advising the FROB on the privatization of Catalunya Banc with an innovative structure (bought by BBVA for €1.1 bn and by Blackstone for €3.6 bn), Bankia on the equity sale of Bancofar, and BMN in the merger with Bankia. Recently, in 2018, he co-founded Zero1, a Fintech Company, which use the Machine Learning technology in order to disrupt the Supply Chain Finance industry, solving finance gap in trade finance. Previously, José Antonio worked in Alantra Investment Bank, Deloitte’s Financial Institutions Area & Banco Espirito Santo Investment Bank.

Management


Michael Bray

Legal Counsel

Michael has over 40 years of experience as a banking lawyer in London. During this period of time he has provided assistance to many of the world’s leading financial institutions, and has been mentioned regularly in legal directories as one of the world’s leading banking lawyers. He has contributed to developing many banking and financial products and possesses significant experience in all areas of bank transactions and capital markets, including leverage finance, project finance, structured finance, commodity and trade finance and insolvency and restructuring procedures. Michael has regularly provided assistance to clients at Board level and, in the 2008 financial crisis, he acted as a high-level strategic legal advisor to financial institutions on issues ranging from major litigation disputes to financial regulatory reforms, and to the implications of the Eurozone crisis. From 1976 to 2015, Michael was a banking partner at Clifford Chance, where he also held a number of senior management roles. From 1995 to1999, Michael was Chair of the Global Finance and Capital Markets Practice of Clifford Chance and from 1999 to 2002, Michael was the Firm’s Global Managing Partner. After retiring from Clifford Chance in 2015, Michael became, and remains, a partner in, and member of the executive committee of, Grimaldi Studio Legale, a firm which he co-founded as a part of Clifford Chance when Clifford Chance first established a presence in Italy. Michael holds a first class honours degree in law from Liverpool University.

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