Trading on emerging opportunities
An export financing arrangement for Fortrec in Asia
Established in September 1999 and headquartered in Singapore, Fortrec is an independent and privately-held commodity trading company with over 18 years’ track record in supplying petrochemicals and petroleum products. The company provides innovative and value-added solutions, including financial structuring, raw material sourcing and plant operations. Fortrec maintains a global presence with a strong Asian footprint.
As part of its corporate goals, Fortrec wanted to grow its third-party trading business, primarily in emerging markets such as Vietnam and Bangladesh. To accommodate the financial request from their customers, they accepted Documentary Letters of Credit with usance periods of up to 90 days. Fortrec procures products from large established players in the oil industry, on mismatched 15-30 days credit terms. The success of this trading business is predicated on the ability of Fortrec’s partner bank and trade finance provider to support these flows with the issuance of Standby Letters of Credit (SBLC) and the ability to negotiate Export Letters of Credit issued by other banks from the emerging markets.
A supportive solution
After a careful assessment and evaluation of Fortrec’s requirements, DBS proposed an export financing arrangement that would manage the sovereign and credit risk exposure of the Export LC issuing banks from these emerging Asian markets. This solution would leverage the expertise of DBS’ Trade Asset Management (TAM) capabilities. DBS maintains Master Risk Distribution/Participation Agreements with an extensive pool of partner banks who have been given a ‘High grade’ rating by international credit rating agencies.
On a transactional basis, in cases where DBS had limited or low credit appetite on the Export LC issuing bank, DBS distributes the credit risks of financial institutions in these emerging markets to partner banks. This mitigates the collection risks of the Export usance LC. Based on this, DBS offered facilities for issuance of Import SBLC, coupled with an import bridging loan for payment to their suppliers. The import financing solution by DBS further assured payment to Fortrec’s suppliers.
Managing with success
With this solution, the payment risk of the Export LC issuing bank is materially mitigated, thanks to DBS’ TAM capabilities. This is the primary repayment source for the corresponding import financing, without which, the financing agreement would not have been undertaken.
Fortrec is now in a good position to negotiate for better terms with its suppliers, and, in turn, offer more attractive terms to its buyers from their target emerging markets. The company’s cash flow position has also significantly improved, as it now has the option of getting an advance and/or a discount on the Export LC to settle import obligations. Finally, as the discounting of Export LCs is marked against the bank’s limits, it has freed up the company’s funds for other, more pressing transactions.
"The DBS team has gone to great lengths to understand our business model well and has offered a trade solution that meets the trading requirement of our customers and suppliers while also ensuring that our interests are well-protected. It is a pleasure working together with your team and we look forward to further strengthening the strong partnership with DBS."
Ajay Bhattacharya, Managing Director of Fortrec
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