Trading on a digital financing solution
A digital solution in the form of an e-warrant finance instrument for Wanxiang Resources.
Wanxiang Resources was incorporated in 2004, acting as the commodity trading and investment vehicle of the Wanxiang Group Corporation. The company trades base metals, energy and chemical products, as well as engages in investment and financial derivative businesses in China and Asia. In addition, Wanxiang Resources owns and operates upstream and midstream assets to better serve their customers and mitigate risks within the value chain.
Getting more out of the trading cycle
Typically, Wanxiang Resources would stock up on certain commodities through the purchase of Standard Warehouse Receipts (SWR) based on their business requirements. Over time, this has resulted in liquidity constraints and comparatively high financing costs. Furthermore, inventory is usually volatile and this makes it difficult to maintain a stable cost of funding to hold these assets. Also, the cash conversion cycle is comparatively longer due to market fluctuations, so there is a pressing requirement for flexible working capital support.
To counter these issues, Wanxiang Resources needed a short-term loan and accounts payable financing solution that was flexible enough for ad hoc drawdowns and repayments. This also needed to be flexible enough to ensure the lowest cost of financing to negotiate financing costs.
A warranted solution
Partnering with DBS, Wanxiang Resources explored a digital solution in the form of an e-warrant finance instrument that enhances their working capital cycle. This solution is a financing arrangement against the SWR in the form of an electronic warrant and pledged/mortgaged to the banking partner as acceptable collateral.
As a leader in working capital management, DBS also supported Wanxiang Resources by increasing the asset turnaround of their business and providing financing against their Shanghai Futures Exchange e-warrants at competitive rates with superior service levels. Furthermore, to enhance Wanxiang Resources’ trading cycle, DBS added the e-warrant line to the existing Account Payable Financing (APF) line.
The commodity of results
With the implementation of this solution, the company’s funds were freed up into their working capital cycle to meet their business needs. Significant financial costs were saved, and operational efficiency was greatly improved. In addition, this new structure improved Wanxiang Resources’ bargaining power in the supply chain. It was also acceptable to the bank’s credit function as a SWR is generated through the SWR System, which is developed by the exchange house and is only available to approved participants. With this, the risk of fraud and forgery has been significantly reduced.
“We were looking for a solution to benefit both our liquidity requirement and cost of funding. By implementing DBS’ e-warrant finance solution, our working capital cycle has been significantly enhanced. This is a win-win situation.”
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