DAY 1 – UNDERSTANDING THE COMMODITIES SUPPLY CHAIN

It is fundamental to understand what role each stakeholder plays and the risks they take in the entire supply chain. From producer, to merchant, to end buyer/processor, whether in agriculture, energy or metals, each actor bears and transfers risks. A good understanding of such interactions, is the key to pragmatic risk assessment, management and financial structuring solutions.

Session 1 – Markets

• The particulars of each commodities markets (agri & food, oil & gas, power, mining & metals).
• Roles & interactions of the market participants (producers, merchants, processors, transportation, services, insurers, banks, funds).
• Value or margin creation analysis.
• Mapping of the main CSTF players.

Session 2 – Focus on Traders World

• What role do merchants play?
• Risks they take and why?
• How do they make money?
• How are they being financed? Why are they one step ahead of the lenders?
• Strategies of the merchants (asset light vs. asset heavy), pros & cons.
• The value of receivables and how to enhance values and safety.

Case Study: The Noble story

• How & why did Noble fail?
• From standard transactional metal trader to listed behemoth.
• Is diversification paying off?
• Are producing assets necessary for a merchant?
• The pros & cons of listed trader vs. keeping private.

Session 3 – Originating Supply

• Pre-export to finance grower/producer cycle.
• Production and delivery conditions determining contract outcomes.
• What can go wrong?
• Difference between pre-financing, pre-payment, and tolling structures.
• Performance and country risks.
• Ownership of the commodity asset.
• Licenses, export quotas. foreign currency controls / arbitrage.
• Limited recourse: Absence of obligation to reimburse in full upon producer’s failure to deliver.
• Protection against non-delivery by processor.
• Security interests of financier, subrogation.
• Insurance solutions.

Session 4 – PXF vs Pre-Shipment

Case Study:

– Cocoa Origination: European merchant originating beans from West African country, processing locally and exporting to Western Europe. Where and what are the risks? How can they be properly mitigated for a sound and default proof lending structure?

– West Africa Cotton: Mali and Burkina Faso are two important cotton producing countries, where lenders and merchants need to understand all the risks involved (crop, RSE, political, currency, price etc.), in order to deliver robust if not resilient lending structures.

DAY 2 – RISK MANAGEMENT & MONITORING

Sometimes, commodities bankers keep a “technological wall” between lending and markets, hence ignoring what their customers are doing and the market risks they really take. This course will allow the structurer, the manager, the collateral manager and the credit lender to better reconcile, financial market risks and structured lending.

Session 5 – Financial Risk Management Tools

• Financial contracts or commercial contracts?
• Understanding price & basis risk (quality, location, time).
• Applying hedging mechanism and monitoring the exposure.
• Assessing trading book P&L.
• Reconciliation of hedge book and commercial book and the use of ERP / CTRM.
• Financing Initial & Variation Margin.
• Understanding a Tri-Party Agreement.

Session 6 – Due Diligence & Monitoring

• Assessing the key risk indicators and determining the appropriate response.
• Performance (production, delivery).
• Country (confiscation, embargo, currency etc.).
• Corporate (financials, cash flow, borrower, supplier, buyer, logistics etc.).
• Payment (LC, Collection, AR discounting, credit insurance etc.).
• Review of key legal risks (choice of jurisdiction, assignment etc.).
• Origination & credit proposal (pre-approval).
• Loan set up (post approval).
• Participation in syndicated facilities or Agency role responsibilities for structured deals.
• Monitoring tools or systems.
• Workout situations (soya in Indonesia, Fuel oil in Cyprus etc.).

Session 7 – Inventory Finance

• Warehouse Finance and CMA: Differences and benefits may apply in different circumstances, countries, jurisdictions. How to control assets in remote locations? What value to give to such structures and inventory? How secure can it be?
• Borrowing Base: Are BB for every borrower? How should banks monitor borrowing base lending and value collateral?
• Repurchase Agreement: Is it the ideal inventory finance solution?

Session 8 – Case Study

– USA Coffee Trader: Structuring a syndicated Borrowing Base facility for a USA based coffee trader active in Central & South America.

– Repo for a Food Processor: How to achieve off balance sheet inventory solution for a listed European cocoa processor. The fine line between structured lending and physical trading.

DAY 3 – INNOVATION AND ASSET OPTIMIZATION

As commodities players, producers, merchants, processor & lenders are struggling with reduced margins and increased operational costs, can technology provide solutions? Are financial innovations possible? Do alternative lenders provide alternative solutions? Are banks limited in their structuring offering?

Session 9 – Technology Disruption

• Are new technological innovations changing the commodities landscape?
• Understanding Blockchain & Distributed Ledger Transaction.
• Application to Trade & Structured Trade Finance.
• AI & Machine Learning applied to Commodities (Predictive Layer, Kayros, AXA Parametrics etc.)

Case Study – Blockchain & Commodities:

Review of some industry DLT initiatives (Komgo, Vakt etc.).

Session 10 – Alternative Lenders

• Mapping of the alternative lenders.
• What do commodities funds provide? Are they useful?
• How can CSTF banks collaborate with funds?

Case Study – Transmar default:

– When financial structuring & trading “innovation” are pushed to the limit, risks may get out of control. Understanding why it failed and the role of alternative finance.

Session 11 – Looking at Non-Traditional Commodities

• With the need for protein, commodities lenders have to look at meat or fish / aquaculture markets opportunities.
• What are the particular risks of such markets? Can it be satisfactorily mitigated?.

Case Study:

– Frozen fish procurement via off balance-sheet structure.
– Pork borrowing base in Mexico

Session 12 – Team Challenge/Closing

In two teams, taking both the role of an oil major’s structuring team and of the lending bank’s credit committee, the delegates will try to achieve the best risk analysis and most appropriate structure proposition.

The Trader team will submit a workable structure. The Credit team will anticipate the risks and prepare to challenge the lending proposal. The objective is to reach a workable structured lending solution.

Crude Oil tolling in Egypt – A major trader delivers crude oil to an Egyptian refinery vs. the offtake of fuel oil. What are the risks? How to structure and hedge such transaction?

End of Programme

For a detailed profile of the course director, please fill in a brochure request.

The venue of the training is always in a centrally located 4-5 star hotel. The venue is confirmed 2 weeks before the programme once registration is closed and we know the exact number of delegates attending. We have exclusive rates with the hotel, if you require accommodation during the programme.