Category: Asia
RCEP: a shot in the arm for Asia’s supply chains, a blow to the US
From Global Trade Review (GTR) | By Eleanor Wragg
Eight years after the official start of negotiations, the Regional Comprehensive Economic Partnership (RCEP) – a free trade agreement covering almost a third of the world’s population and 30% of global GDP – is now a reality. The deal, concluded between China, the 10 Asean member states, Australia, New Zealand, Japan and South Korea, is almost unrivalled in its complexity. Its 20 chapters plus 17 annexes and 54 schedules of commitments manage to cover market access, rules and disciplines, and economic and technical cooperation between what are 15 very different trading nations. The agreement pulls together a pan-Asian basic standard for trade that goes beyond the terms provided by the World Trade Organization (WTO), supporting regional integration and engaging emerging markets and developed economies. Although the RCEP was an Asean initiative, it is regarded by many as a China-backed alternative to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a deal that excluded China but included many Asian countries. For the first time, RCEP brings together China, Japan and South Korea in one trade agreement, roundly cementing the primacy of the Asia-Pacific region in global trade. However, not all is rosy in the RCEP area, as Australia and China are currently embroiled in a trade dispute that has rolled on since China imposed an 80% tariff on barley imports from Australia and an outright ban on beef imports from four major producers, citing compliance issues. Nonetheless, for many onlookers, the general mood seems to be one of optimism about the deal’s potential to bring the region together. “RCEP may prove to be the tonic Asia needs to recover from the pandemic-induced slump,” says Stuart Tait, regional head of commercial banking for Asia-Pacific (Apac) at HSBC. “Although international trade continues to face uncertainty, the signing of RCEP underscores the belief that market openness will lead to greater economic growth for more. Intra-Asian trade, which is already larger than Asia’s trade with North America and Europe combined, will continue to power global economic growth and pull the economic centre of gravity towards Asia.” Common rules of origin Because many of the RCEP signatories already have bilateral trade pacts with each other, there’s little in the way of immediate tariff reduction in the pact’s 510-page document. Indeed, the average tariff of Asean countries on imports from RCEP partners had already dropped from 4.9% in 2005 to 1.8% currently. However, the agreement now delivers a single set of rules covering all 15 markets, making trade simpler and reducing compliance costs for exporters. The biggest win in the deal is the creation of a common rule of origin certificate, which harmonises the information requirements and local content standards for businesses in the RCEP member countries. Effectively, this means that parts from any member nation would be treated equally, which Euler Hermes calculates will boost merchandise exports among signatories by around US$90bn a year on average, giving companies an incentive to locate their supply chains within the trade region – likely leading to a further boost for intra-regional trade, which already makes up close to three-fifths of total trade activity in the Apac region. Another deal without the US The signing of RCEP marks the second mammoth Apac trade deal that excludes the US, after President Donald Trump pulled the country out of the CPTPP in 2017. With the International Monetary Fund (IMF) forecasting that the region will regain an average growth rate of over 5% by 2021, US exporters need access to its lucrative markets if they are to share in post-pandemic economic growth. In a statement, Myron Brilliant, head of international affairs at the US Chamber, said: “The US Chamber welcomes the trade-liberalising benefits of the newly signed regional comprehensive partnership agreement but is concerned that the United States is being left behind as economic integration accelerates across the vital Asia-Pacific region. China has become the most important trading partner for most of the Asia-Pacific, and its central role in the RCEP will only cement this position. While the Trump Administration has moved to confront unfair trade practices by China, it has secured only limited new opportunities for US exporters in other parts of Asia.” He calls for the US to adopt a more “forward-looking, strategic effort” to maintain its economic presence in the region, or risk “being on the outside looking in as one of the world’s primary engines of growth hums along without us”. President-elect Joe Biden’s plans for the region are yet to be seen, but hopes are high among US exporters that, at the very least, the incoming administration may consider a return to the CPTPP fold. Door still open for India Trans-Pacific issues aside, the next step for RCEP will be working through the barriers to India’s accession. The country withdrew from negotiations last year due to mismatches between its protectionist-leaning trade policies and the market access commitments required by the deal. However, during the signing of the deal, RCEP signatories were keen to leave the door open for the South Asian nation. “We would highly value India’s role in RCEP and reiterate that the RCEP remains open to India,” they said in a joint statement. “As one of the 16 original participating countries, India’s accession to the RCEP agreement would be welcome in view of its participation in RCEP negotiations since 2012 and its strategic importance as a regional partner in creating deeper and expanded regional value chains.” The post RCEP: a shot in the arm for Asia’s supply chains, a blow to the US appeared first on Global Trade Review (GTR).Fintechs Partner To Use Blockchain To Eliminate Invoice Finance Fraud
For the first time, alternative funders will be able to derisk invoice and receivable finance transactions – reducing compliance costs and fraud.
Singapore, October 16 , 2018 – Fintech global invoice discounting platform Incomlend has adopted Invoice Check – a blockchain application developed by Trade Finance Market (TFM) – to quickly and easily determine if an invoice on their platform is potentially being double financed on the outside.
Invoice finance fraud is a huge problem because a financier has no way of knowing if an invoice is fraudulent or has already been financed by another funder. The International Chamber of Commerce found almost 20 percent of banks reported an increase in fraud allegations over the past year – representing a major threat for businesses and organizations around the globe. When a default occurs, there may be several funders who all think they own the invoice or receivable. This problem is magnified in cross border transactions, especially when only paper invoices are used and in markets where there is no central registry with which to register a charge.
Using blockchain technology, Invoice Check encrypts transaction data whilst also providing information on whether an invoice is potentially fraudulent or being double financed. A key difference with Invoice Check is that it does not rely on a central registry – using instead the power of decentralized ledger technology. Data is protected from potential competitors and is tamper resistant once on the blockchain. Invoice Check works alongside existing technologies and can be easily deployed via an API, which keeps costs down and increases accessibility.
Founding Partner of Incomlend, Dimitri Kouchnirenko, sees this as an important development:
“Partnering with TFM on invoice fraud risk mitigation through practical blockchain technology is a major milestone for Incomlend. We are proud to be on the forefront of innovation with TFM’s Invoice Check deployment into our systems, reinforcing even further our cross-border risk management framework. We invite all the fintech invoice trading platforms and other financiers to join the TFM initiative to build the world’s first global immutable registrar of receivables finance transactions based on decentralized ledger technology, contributing to making international trade finance a safer place.”
“We are extremely pleased to be working with Incomlend – demonstrating how fintechs are taking the lead in pioneering practical use of distributed ledger technology.” said TFM Executive Director, Raj Uttamchandani.”The inability to validate invoices is an obstacle for SMEs in obtaining finance and slows growth. Invoice Check fills this gap and utilizes blockchain in a way that has never been done before – with the end goal of providing funders with security and SMEs with liquidity.”
Kelvin Tan, Co-founder and Chief Investment Officer of GTR Ventures, which has invested in both TFM and Incomlend, adds:
“We are very happy to see both our portfolio companies in the fintech lending space, working together to enhance their risk management processes. Multiple invoicing is a global, industry-level risk that afflicts not only alternative fintech lenders and factors, but also banks, insurers, and credit funds.
Such collaboration fulfills our vision to go beyond mere venture capital investing, and, as a venture builder, take proactive steps to solve structural pain points in the lending sector.”
Leveraging Singapore as a starting point as a trusted digital data hub, we welcome all lenders, banks, non-banks, and fintechs,to partner us in our vision to build an alliance to reduce risks in the lending sector, and mitigate fraud.”
Heng Swee Keat, Minister for Finance, at the Official Launch of NTP
Date: 26 September, 2018
Location: Orchard Hotel Singapore
Time: 10:30 AM
At the launch of the Networked Trade Platform (NTP), Minister of Finance Heng Swee Keat outlined key initiatives for the new organization.
NTP seeks to digitalize trade documentation and processes, transforming the trade landscape while raising productivity and creating new opportunities for digital trade service providers and the trading community more generally.
Heng Swee Keat also hopes to broaden and globalize the Singapore trading community by integrating B2B and B2G transactions.
He described NTP as a transformational platform that will give Singapore traders a “one-stop” interface for all trade related regulatory transactions. He believes NTP will help boost productivity and competitiveness, while unveiling new opportunities to traders.
Click below for a link to the speech.
Swift trials instant cross-border payments in Asia Pacific
From Global Trade Review (GTR) | By Finbarr Bermingham
Swift is looking to bring cross-border payments times down to “instant” in a new trial that it has begun in Asia Pacific, focusing on settlements into Australia.
It will pilot an improved version of its global payments innovation (gpi) service, which was launched in January 2017 to bring faster cross-border payments to its network.
So far, Swift has managed to reduce payment clearing times to under 30 minutes in more than half of gpi use cases.
Now the company will seek to reduce this further. Swift’s new “gpi real-time service” will be tested using Australia’s new payments platform (NPP), an instant payments platform that went live earlier this year, and which has so far been used to process domestic payments. Swift was commissioned by the Reserve Bank of Australia (RBI) to design and build this solution in 2015.
This move to improve the gpi service will involve banks from Australia, China, Singapore and Thailand. These are: ANZ, Bangkok Bank, Bank of China, China Construction Bank, Commonwealth Bank of Australia (CBA), DBS, ICBC, Kasikornbank, National Australia Bank (NAB), Siam Commercial Bank, Standard Chartered and United Overseas Bank (UOB). The banks had previously been involved in workshops around instant payments with Swift.
Whether or not the new gpi service replaces the existing one is undecided: Swift is waiting for the results of the trial, which it plans to announce at Sibos, its annual banking, finance and fintech conference, which takes place in Sydney this October.
“The gpi real-time service is a critical step in delivering cross-border instant payments. The commitment and support we have from Asia Pacific’s leading banks is a strong indication that they understand the immediate value of partnering with Swift to realise a fast, secure and seamless cross-border real-time payment service that scales globally,” says Eddie Haddad, managing director at Swift in Asia Pacific.
Already, the gpi is being used to settle US$100bn in payments every day, according to Swift. It has been gaining traction in Asia Pacific. In June, 10 Chinese banks went live with the gpi service, with 17 others in the process of implementing it.
In July, Swift announced that all 10,000 banks on its global network will use gpi by 2020, after Swift was impressed by the progress made with the technology since its launch.
Sun Shangbin, deputy general manager in Bank of China’s clearing department, says the instant gpi would “substantially enhance cross-border payments efficiency, providing high-quality service experience for our customers”.
Silawat Santivisat, executive vice-president of Kasikornbank in Thailand adds: “The keen competition amongst payment channels, competitive transaction fees and transaction speeds offered by new entrants, mean that a faster Swift gpi service is crucial to driving international payments. While real-time payment is common for domestic transfers, it is an innovation for international payments.”
He may be referring to competition from outfits like Ripple, which have been able to reduce payment times to instant – or close to it – by using blockchain technology. Swift, for its part, has trialled blockchain for nostro account reconciliation, but has not been convinced that it is a technology ready for use at the required scale.
At an event in Hong Kong in June, a Ripple executive dismissed the gpi service as being only a marginal improvement on the traditional Swift offering.
“Swift was built 40 or 50 years ago, before the internet was created. So their architecture is very old. They realise that this is a big problem and they consider us a big competitor. They’re also trying to make a big improvement based on the existing architecture, called Swift gpi. We consider it just a marginal improvement of their existing architecture,” said Ripple’s director of joint venture partnership, Emi Yoshikawa
The market, however, will welcome another move from Swift to reduce payment times. It is used across the board by banks around the world and the likelihood is that most would prefer to use a payments service from a company they know and trust, rather than using a new player.
“Swift’s new instant cross-border payments service is an important industry initiative that will complement our efforts to provide clients more control of and insight into their transactions,” says So Lay Hua, head of group transaction banking at UOB.
The post Swift trials instant cross-border payments in Asia Pacific appeared first on Global Trade Review (GTR).Do Japanese banks’ project pipelines conflict with shift in coal policy?
From Global Trade Review (GTR) | By Finbarr Bermingham
Despite suggesting they would restrict their funding for coal projects, the project pipelines of Japan’s three major banks suggest they are still heavily involved in the sector.
Mizuho, MUFG and SMBC all updated their coal-funding policies in May and June of this year. The move was welcomed by environmentalists, given that these banks are among the heaviest funders of dirty coal projects in Asia.
However, new research from Market Forces, a lobby group, shows that each is set to fund large projects that would be in contravention of their updated policies. Combined, these projects will emit 1.6 billion tonnes of CO2 over their lifetimes.
The study shows that if they were to follow their policies to the letter, Mizuho would be ruled out of 40% of their pipeline projects by capacity. MUFG would be ruled out of 31%, while SMBC would have to scrap 31% of these projects.
Mizuho’s policy brief states that “primary considerations is whether the use of greenhouse gas-producing technology is appropriate due to economic necessity when compared to feasible alternative technologies which offer similar levels of energy efficiency”.
The MUFG document reads: “MUFG Bank and Mitsubishi UFJ Trust and Banking refer to international guidelines such as OECD arrangement on officially supported export credits, when considering the provision of financing for new coal-fired power generation.”
These guidelines restrict funding for the majority of coal-fired projects. Those that can be funded are those that require “ultra-supercritical technology”, which rules out most of the pipeline, according to Market Forces.
SMBC’s updated policy also refers to ultra-supercritical technology, defined as power plants which “require less coal per megawatt-hour, leading to lower emissions (including carbon dioxide and mercury), higher efficiency and lower fuel costs per megawatt”.
The bank’s policy reads: “Our policy for new financing will be stricter, limiting financial support to only coal-fired power plants that use ultra-supercritical or more advanced technologies which are considered highly efficient”.
None of the banks were willing to comment on the report, however an MUFG representative raised the bank’s positive ranking with regard to clean energy financing, stating that while 50% of MUFG’s portfolio of power-related project finance worldwide is in the renewable sector, less than 10% goes to coal.
The projects in question span five countries: Botswana, Bangladesh, Myanmar, Mongolia and Vietnam. Almost 50% of the coal-fired plants will be built in Vietnam, which has been investing heavily in power plants, the majority of which are coal-fired.
SMBC was among the lenders on the S$1.87bn syndicated loan for the Nghi Son 2 coal-fired power plant in Vietnam, which reached financial close in April, despite claims that it will generate “twice as much” CO2 per every unit of power generated as the average generating plant in Vietnam.
Meanwhile, Sumitomo Mitsui Trust Bank, part of the same group as SMBC, told Reuters in July that it “would stop providing project finance for new coal-fired power stations as a basic rule”.
The post Do Japanese banks’ project pipelines conflict with shift in coal policy? appeared first on Global Trade Review (GTR).Standard Chartered on trade war: “At what time does sanity prevail?”
From Global Trade Review (GTR) | By Finbarr Bermingham
The US-China trade war can only have negative effects in the long run, even if the short term impact have been minimal for trade finance providers in Asia.
Those are the views of Standard Chartered’s global head of trade finance, who has called for common sense, as trade tensions continue to escalate.
In an interview with GTR in Hong Kong, Farooq Siddiqi voiced concerns over the negative effect the US-China conflict may have on trade and investment sentiment.
Citing examples of trade wars in the 1930s and 1970s, Siddiqi says: “When you look at the benefits, did it protect employment or help GDP? The answer is all negative. In the long run, if you have this mutually-assured destruction, it doesn’t help anybody. The question is: at what time does sanity prevail?”
Standard Chartered is one of the leading funders of trade in emerging markets and is extremely active throughout emerging Asia, including in China. A sizeable portion of the bank’s book comes from financing trade between China and the rest of Asia.
In an earnings call after the bank reported a healthy profit over the first half of 2018, chairman Jose Vinals said: “Our direct exposure to the risks of US-China trade tensions is limited. We generate far more income financing commerce between China and other markets in our footprint — meaning we stand to benefit over time if that were to increase — than we do on trade between China and the US.”
This sentiment was echoed by Siddiqi, who says that the US-China trade Standard Chartered finances is “not a material number”. However, it may lead to shifts in production bases, according to research the bank has done with clients in China.
“We did research with some companies in the Pearl River Delta, asking them for their your response to the trade war. Some will try to figure out a separate sourcing strategy. In the medium term, they’ll look to move their manufacturing location to another country. The big theme is companies moving south to Asean, Cambodia, Myanmar, and so on,” he says.
This research surveyed more than 200 companies working in the Pearl River Delta. Of these, 70% expect a high or medium negative impact from a trade war. This in part explains the shift towards other markets in Asia, a medium-term endeavour that may take three to five years to complete. However, these shifts are likely to occur regardless of the resolution of the trade war, due to the increase in labour costs in China.
“Net-net I don’t expect anybody to benefit from the trade war. In the long term it will have a negative impact. In the short term I expect companies to look for tactical places to switch sourcing. In the medium term if it really stays, they will look at rebasing manufacturing into other locations,” Siddiqi says.
His views are largely shared among Asia Pacific trade financiers: the industry is yet to experience a material impact from the trade war – with the caveat that the tariffs have only recently started taking effect.
“When we think about the trade wars, from my perspective I am more concerned with the trade rhetoric damaging investor sentiment, investor confidence and sending markets lower,” said HSBC’s chief executive John Flint on an earnings call earlier this month.
Siddiqi, meanwhile predicts that the future growth engine of global trade will be intra-Asian trade and domestic consumption in emerging markets in the region, namely China, India and Indonesia. This reshuffling of the traditional export model may help shelter the region from future scuffles between the US and China. It may also help banks such as Standard Chartered, which have domestic footprints in these markets.
“Traditional factors which drove trade growth in the past were trade between Asia and OECD countries. The EU and US would consume, Asia would produce and sell to those markets. That model is fundamentally changing. Mostly, people will produce to consume it locally: look at markets like Indonesia. Yes, today is dominated by the trade war rhetoric, but these are green shoots that banks like ours are focusing on, because that’s where the revenue growth will be,” he says.
The post Standard Chartered on trade war: “At what time does sanity prevail?” appeared first on Global Trade Review (GTR).Malaysia leads “blowback” against China’s Belt and Road Initiative
From Global Trade Review (GTR) | By Finbarr Bermingham
Amid mounting debts and fears over China’s perceived expansionary intentions, more and more countries are becoming disgruntled with the much-vaunted Belt and Road Initiative (BRI).
Malaysia’s Prime Minister Mahathir Mohamad this week used a state visit to Beijing to announce he was shelving plans for two major infrastructure projects that fall under the BRI umbrella.
“I believe China itself does not want to see Malaysia become a bankrupt country,” Mahathir said, referring to Malaysia’s high level of sovereign debt, upon announcing his plans to scrap the projects
The previous day, standing alongside Chinese Premier Li Keqiang, the recently returned veteran leader had said: “We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries.”
Mahathir has cancelled the East Coast Rail Link and the Trans-Sabah Gas Pipeline projects, which were due to cost US$20bn and US$2.3bn, respectively.
In doing so, he has echoed the concerns of many other politicians and analysts about the potential debt trap that the BRI could potentially create, as well as the conditionality that could come as a result of being unable to repay these debts.
“I would totally agree that there’s blowback occurring on all fronts regarding China’s state-centric soft power, including BRI. I think there’s pushback on all fronts on China Inc’s ambitions to promote Chinese firms and technology,” Alex Capri, visiting senior fellow at the National University of Singapore’s business school, tells GTR.
“On BRI, the debt model that Beijing has been pushing for to emerging countries, it’s increasingly seen as a honeytrap that has backfired,” he adds.
The situation is laid bare in a recent study by the Centre for Global Development (CGD), a US think tank. Researchers evaluated the current and future debt levels of the 68 BRI countries, finding that 23 of those are at risk of debt distress today. The study found that for eight of those countries, future BRI-related financing will significantly add to the risk of debt distress.
These countries are: Pakistan, Djibouti, Maldives, Laos, Mongolia, Montenegro, Tajikistan and Kyrgyzstan.
The situation in Pakistan has come under intense scrutiny following the election of new Prime Minister Imran Khan. Pakistan is rated by the CGD as “by far the largest country at high risk”, with US$62bn in additional infrastructure debt, 80% of which is owed to China through big ticket BRI projects.
While Khan is set to review some of China’s energy and infrastructure investments, the early signs are that he will maintain close economic ties with Beijing.
In Sri Lanka, anti-China investment sentiment predates BRI itself. The country was the recipient of a series of high interest Chinese loans which helped build highways, a cricket stadium, a deep-water port and the massively under-utilised Mattala Rajapaksa International Airport, which has a capacity for one million passengers a year, but which sees only a dozen passengers every day.
“Some countries are growing increasingly wary about the financing structures associated with Chinese infrastructure investments. There are worries about potentially high levels of debt. In cases of debt-for-equity deals – as with the Hambantota port in Sri Lanka, for example – critics raise concerns about political leverage and territorial integrity,” Joydeep Sen, South Asia analyst at Oxford Analytica tells GTR.
Tonga’s Prime Minister Akilisi Pohiva, meanwhile, last week said that Pacific island nations should lobby China to forgive the debts owed to it for infrastructure projects. The country is reportedly US$160mn in debt to China, including a 2007 loan from China Exim to rebuild the capital city Nukualofa following a spate of rioting.
“One issue for certain is that we don’t want the Chinese government to take the assets used as collateral for the loan, and when we don’t request for loans, we will not be aligned with the developments of the world it is today,” Pohiva told the Samoa Observer.
Even while the pushback gathers pace, however, enthusiasm for BRI remains strong among the banking sector. In a recent glowing report on the BRI, German bank Commerzbank wrote: “Despite these challenges, Commerzbank is confident that, for BRI countries and companies – including those from Europe – as projects increase, so will the opportunities, trust, expectations and rewards.”
Citi, meanwhile, has just appointed a head of banking and origination in Hong Kong, dealing exclusively with BRI-related work.
The post Malaysia leads “blowback” against China’s Belt and Road Initiative appeared first on Global Trade Review (GTR).German development bank KfW supports Indian renewables
From Global Trade Review (GTR) | By Finbarr Bermingham
KfW Ipex-Bank, a German development bank, has loaned €200mn to support renewable energy production in India.
The borrower is Rural Electrification Corporate (REC), a government agency that will onlend the finance in the form of low-interest loans, to investors in the solar and wind power sectors.
Borrowers must contribute 30% in equity to any project supported by the REC scheme, while it is also hoped that other banks can join financings through syndication.
It fits in with the Indian government’s plans to produce 175GW of renewable energy by 2022. This would represent around 50% of total energy generation. 100GW would come from photovoltaic energy under this plan, with a further 60GW coming in the form of wind energy. The rest would come from smaller sources, such as biomass and small-scale hydropower.
This KfW Ipex package will see enough power generated to support 270,000 Indian homes, offsetting some 285,000 tonnes of carbon emissions each year. It marks the fourth line of credit REC has received under the Indo-Germany Development Co-operation, a bilateral initiative designed to support renewable green energy projects in India.
KfW Ipex has a history of supporting rural electrification in South Asia. Since 2016, it has provided support for Myanmar’s rural electrification programme, culminating in a financing package in 2017.
The post German development bank KfW supports Indian renewables appeared first on Global Trade Review (GTR).DBS rejigs Wilmar loan in Asia’s latest sustainability-linked loan
From Global Trade Review (GTR) | By Finbarr Bermingham
Agricultural commodity giant Wilmar has renegotiated an existing revolving credit facility (RCF) with lender DBS, so that the terms may be reduced if it hits sustainability targets.
Wilmar will now pay less interest on its two-year US$100mn facility if it reaches performance indicators on a range of issues, from biodiversity to greenhouse gas reduction and renewable energy.
This is the latest sustainability-linked loan in Asia, following similar agreements reached this year. The market is nascent, but DBS says it has fielded enquiries on such facilities from both Asian and global commodity players.
“We welcome clients to discuss the possibility with us, and we also reach out to clients committed to the sustainability agenda to consider different green financial products, such as green loans, green bonds and ESG (environmental, social, governance)-linked loans,” Yulanda Chung, DBS’ head of sustainability, tells GTR.
She refused to say how much of a pipeline there is for this type of funding, but said that “it should not be used as a greenwashing attempt”. The bank will only consider working with companies that have “ambitious yet achievable targets” pertaining to ESG.
Further details on the loan’s terms have not been disclosed, but the pre-set performance indicators have been established by Sustainalytics, a Dutch company which has been involved in a series of sustainability-linked loans over the past year.
In November 2017, ING restructured a portion of a US$150mn loan to Wilmar. Again, this will see the company benefit from more favourable terms should it hit ESG targets.
Wilmar was involved with DBS’ Singaporean rival OCBC in June this year on a US$200mn sustainability-linked RCF, also assessed annually by Sustainalytics.
Asia’s first sustainability-linked club loan was closed in March, which DBS was also involved in. Olam was the borrower on this occasion, with 15 lenders contributing equal parts to a US$500mn facility.
Further deals are expected before the end of 2018, although most involved in the sector are keen to impress the very early stages at which the market is currently stood.
The post DBS rejigs Wilmar loan in Asia’s latest sustainability-linked loan appeared first on Global Trade Review (GTR).World Bank covers loans to Myanmar and Pakistan
From Global Trade Review (GTR) | By Finbarr Bermingham
The insurance arm of the World Bank Group has issued guarantees for commercial loans to projects in Myanmar and Pakistan.
In Myanmar, the Multilateral Investment Guarantee Agency (Miga) is to cover US$114.76mn-worth of loans from the Industrial and Commercial Bank of China (ICBC) to Myanmar Fibre Optic Communication Network.
The funds will cover the installation and maintenance of 4,000km of fibre optic cable through six states and eight cities in the country. It supports a government aim of connecting 90% of Myanmar to a telecommunications network by 2020.
Miga’s guarantee provides protection for 5.5 years against the risks of transfer restriction, expropriation, war and civil disturbances. The organisation previously issued a guarantee for a 4,500km cable network in January 2017.
In Pakistan the agency is covering a US$66mn loan from Sojitz Corporation, a Japanese trading company, to Hyundai Nishat Motor, a joint venture between the Korean carmaker Hyundai and the Nishat Group, one of the largest conglomerates in Pakistan.
The guarantee will support the construction, design and operation of a vehicle assembly plant in Lahore, which will produce three Hyundai-branded vehicles from 2020. With an annual production capacity of 30,000 vehicles, the plant will source supplies such as tyres, rubber parts and batteries from local vendors.
Again, the risks covered by Miga are transfer restriction, expropriation, war and civil disturbances – this time for 15 years. The package will help diversify Pakistan’s automotive industry, which is at this point dominated by Japanese companies.
Sojitz, the lender, will operate a number of dealerships in Pakistan. The flagship dealership will be in Lahore, with a number of franchises to be opened around the country. The company has committed to investing US$136.5mn in Pakistan’s automotive sector.
“This project will help strengthen Pakistan’s automotive industry, reducing vehicle shortages, improving safety standards, and increasing the choices consumers will have available to them,” says Keiko Honda, CEO and executive vice-president of Miga.
The post World Bank covers loans to Myanmar and Pakistan appeared first on Global Trade Review (GTR).TradeIX opens Singapore office
From Global Trade Review (GTR) | By Finbarr Bermingham
Fintech company TradeIX has opened a Singapore office, making two senior appointments in the city state.
Leon Scott (pictured) joins as head of Asia Pacific operations, while Eugene Buckley has been named business development executive for the region.
Buckley joins from Standard Chartered, where he was head of trade finance innovation and alliances. He has previously worked as an independent consultant and for PrimeRevenue, and is responsible for growing the client base.
Scott joins directly from PrimeRevenue, where he was a director for global capital markets. He has also worked for HSBC and DHL. Scott will oversee the delivery of all the company’s solutions and projects and is charged with growing its trade finance relationship base.
TradeIX is an open blockchain platform focusing on trade finance. It’s Singapore office is part of a global development plan, the company says in a statement. It is among the most high profile of fintech disruptors in the trade finance sector.
“Asia Pacific is one of the fastest growing regions in trade finance and our presence in Singapore is crucial for our current and future bank clients. The strategy of TradeIX is to continue our focus on expanding our client relationships in Asia Pacific,” Buckley says.
Scott adds: “We anticipate strong growth of our team over the coming year, allowing us to serve more clients while covering a larger part of the trade finance market.”
The post TradeIX opens Singapore office appeared first on Global Trade Review (GTR).Most Asian companies unconvinced by blockchain’s use in trade finance
From Global Trade Review (GTR) | By Finbarr Bermingham
The majority of Asia’s top 1,000 companies are unconvinced that digital technologies such as blockchain will improve their trade finance experience.
54% of those polled in exclusive research conducted on behalf of GTR said they were either unsure whether it would translate into a better user experience, or that it would definitely not do so.
This compares with 46% of respondents who think that such technology will improve the trade finance products they use.
The feedback comes as many banks in the region aggressively pursue blockchain projects. HSBC and ING recently completed their maiden trade finance deal on the ledger, out of Hong Kong. Last week, Commonwealth Bank of Australia also completed a trade deal with the help of blockchain technology.
The research, which was undertaken by East & Partners, polled 1,000 companies in 10 countries across Asia, namely: China, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.
Support of digital products is strongest in China, Hong Kong and Singapore. This is unsurprising given that these are among the hotbeds of fintech innovation in the region. In countries such as Indonesia, the Philippines and Thailand, appetite for such products is lower.
There are many examples of innovative banks and companies in these countries. In Thailand, 14 banks are developing a trade finance platform using blockchain technology. In the Philippines, meanwhile, invoice financing platform Acudeen is working with fintech company Stellar to build a blockchain layer that will connect its marketplaces across multiple geographies.
However, in general, it is perceived that the technology is being pursued more vigorously in more mature financial markets, where regulators are seen to be driving many of the initiatives.
“Engagement with digitised solutions tends to be driven by multinational companies in Singapore, Hong Kong and China. It’s almost a measure of maturity and sophistication,” says Paul Dowling, principal analyst at East & Partners.
Furthermore, those companies that are interested in digitising their trade finance experience are expecting to be led by their banks. “That’s the go-to place for these corporates. They’re not necessarily building their own stuff, piloting their own digitised solutions, they’re looking for their banks to deliver,” Dowling says.
A director at a Singapore-based commodity producer tells GTR that the company is extremely interested in – and well-versed on – developments with blockchain technology. However it is not a strategy they are pursuing independently.
“We don’t pursue digitisation on our own. We pursue it with our banking partners as well as some of our key customers, and some of the other participants within our supply chain,” says the source, who prefers to remain unnamed.
Other commodity players have independently staked out blockchain. Trafigura, for example, enlisted French bank Natixis last year to test the technology for use in the oil market.
Steve Ehrlich, chief operating officer at the Wall Street Blockchain Alliance, says that the needle of sentiment will move towards blockchain and other forms of disruptive technology as education as to its benefits also grows.
Ehrlich claims that many corporates “cannot define a blockchain, let alone articulate how it could impact their everyday financing activities”. He says that the association with bitcoin does not do the technology any favours, given the tumultuous year the cryptocurrency has had.
“With all of this in mind, it is perfectly reasonable that a significant percentage of respondents are waiting to be convinced of the technology’s utility and efficacy,” he tells GTR.
He adds: “From my point of view, one that appreciates and is supportive of blockchain-based trade finance and supply chain initiatives, this is not unreasonable. Looking at the 46% who are confident about the benefits of blockchain, it is good to see this level of optimism, though I’d imagine that they are looking for some of the same progress indicators as the pessimists.”
The post Most Asian companies unconvinced by blockchain’s use in trade finance appeared first on Global Trade Review (GTR).Singapore tech firm launches blockchain service for Belt and Road
From Global Trade Review (GTR) | By Finbarr Bermingham
A Singapore-based company has gone live with a solution that allows trade documents to be registered and exchanged securely on blockchain.
Focusing initially on Asia, the founders are positioning the platform to play a role in China’s Belt and Road Initiative (BRI).
The Open Trade Blockchain (OTB), launched by Global eTrade Services (GeTS), allows any entity in the trade cycle – be it the buyer, seller, shipper or freight forwarder – to register their documentation on the platform. Other parties involved in the trade can subsequently verify that the documentation is legitimate through an automated matching process.
Powered by blockchain technology, the system is designed to deal with real-world events, such as an exporter’s email account being hacked or commercial invoices within an email being fraudulently changed.
Documents being on the platform include certificates of origin, commercial invoices, shipping and freight-forwarding documents.
Users can drag and drop the documents onto the OTB, where other permissioned players in the trade cycle can access them. For parties with large volumes of documentation, APIs are available so that they can automatically extract documents stored on internal systems onto the OTB.
Already, around 100,000 documents have been processed on the platform, mostly using GeTS’ existing user base. The firm has also partnered with a number of organisations and agencies, whose clients are now using the platform as well.
As well as referring their own clients to use the system, these organisations can also make use of the OTB’s web service APIs to develop their own interoperable blockchain solutions.
GeTS’ partners host nodes on the platform, which was developed by GeTS using Multichain, a permissioned blockchain framework that the company’s CEO, Chong Kok Keong, says was chosen because of its security and “ability to manage the extraction of data points in huge volume”.
The “digital silk road”
The geography of partners was chosen with an eye on China’s BRI.
“With OTB linking China to the rest of the region, it will provide a strategic edge to businesses wanting to participate in China’s BRI initiatives as it offers greater connectivity with the country’s digital Silk Road,” a GeTS statement reads.
The platform’s current user base of more than 4,000, which includes customers of GeTS’ existing solutions (such as export and import management, trade processing, regulatory and compliance software), as well as users of its partners’ services, can use the OTB for free. The company will begin to charge for services bolted onto the top of this “early building block” further down the line.
No banks have signed up as yet, but Chong says discussions are ongoing. There are ambitions to host transactional documents on the OTB in the future.
GeTS launched one year ago and is a subsidiary of the more established fintech company CrimsonLogic.
Singapore has been a hive of blockchain related activity in recent months, as the Monetary Authority of Singapore (MAS) continues to work towards the launch of the Global Trade Connectivity Network (GTCN – a trade finance solution built on blockchain with the Hong Kong Monetary Authority) early next year.
In May, the Singapore International Chamber of Commerce announced plans to move electronic certificates of origin (eCOs) onto a blockchain-based platform in a bid to improve transparency and security.
In the same month, Arkratos, a Singapore company linked to trading house Rhodium Resources, launched a commodity trading platform built with blockchain technology.
Earlier in the year, Pacific International Lines (PIL), PSA International (formerly the Singapore port authority) and IBM Singapore successfully tested a blockchain platform on a supply chain network between Singapore and China.
This latest effort by GeTS can be viewed in line with MAS’ top-down strategy of connecting other parts of Asia to the blockchain activity in the city state.
“Partnering with GeTS from Singapore on its OTB makes good business sense,” says Xu Xucheng, general manager at Suzhou Cross e-Commerce. “We are already seeing an increase in cross-border trade volumes, and with GeTS’ blockchain solution enhancing the security of the trade documents, it will definitely help to strengthen Suzhou’s position as an e-Commerce hub for China.”
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From Global Trade Review (GTR) | By Finbarr Bermingham
The first fully-integrated petrochemical complex in Vietnam has moved one step closer to fruition after a syndicate of lenders agreed to provide US$3.2bn in funding.
The borrower is Siam Cement Group (SCG), the largest building material company in Thailand and in Southeast Asia. It is also Thailand’s second-largest company.
Six lenders are involved in the package: Bangkok Bank, Export-Import Bank of Thailand (Thailand Exim), Krungthai Bank, Mizuho Bank, Siam Commercial Bank and SMBC. The loan has a tenor of 14 years, with SMBC acting as the financial advisor.
Long Son Petrochemicals plant will be built in Vietnam’s Vunt Tau province, about 100km from Ho Chi Minh City. Construction is due to start in the third quarter of 2018, with the plant expected to produce 2.3 million tonnes of olefin – an unsaturated hydrocarbon used in wallpaper, carpeting, ropes and vehicle interiors – each year.
The project requires total investment of US$5.4bn and is described by SCG’s president, Roongrote Rangsiyopash, as the company’s “flagship investment”.
He adds: “This venture will increase competitive advantages of SCG’s chemicals business in Southeast Asia. Furthermore, the project is equipped with world-class advanced technologies which allow for high flexibility to utilise raw materials resulting in increased competitive advantage. The project also leverages digital technologies to create innovations for better products, services and solutions for customers.”
The project has been in the works for years and SCG became the sole owner in May when it acquired Vietnam National Oil and Gas Group (PetroVietnam)’s stake in Long Son Petrochemical.
Initially it was licensed in 2008 with an estimated required investment of US$3.7bn, which has grown significantly over the past decade.
Given the importance of SCG and its vast array of subsidiaries to the Thai economy, the involvement of Thailand Exim is no surprise. It comes two months after the agency announced plans to open a representative office in Vietnam, with a view to expanding Thai exports to its Asean counterpart.
“Vietnam is certainly one of the promising markets in the Cambodia, Laos, Myanmar and Vietnam (CLMV) region for Thai entrepreneurs,” said Thai Exim president Pisit Serewiwattana on a recent visit to Hanoi.
The post Syndicate funds landmark Vietnamese petrochemical complex appeared first on Global Trade Review (GTR).GTR Ventures Tradetech Showcase Competition
Date: 5 September, 2018 (Day 2 of the conference)
Location: Marina Bay Sands
Time: 11:00 to 13:00
With the trade finance market seeing a constant stream of new entrants, from invoice financing platforms to blockchain-based technology consortia, this showcase competition brought various start-ups together for the chance to “pitch” their business models, strategies and activities to a panel of expert judges. Strong emphasis was placed on innovation, efficiency and providing greater access to finance particularly for the underserved SME market.
Host: Jolyon Ellwood-Russell, Partner, Simmons & Simmons
Judging Panel:
- Juliet Zhu, Vice President (Investment), Fosun RZ Capital Southeast Asia
- John Bugeja, Managing Director, Trade Advisory Network (TAN)
- Kenny Leung, President & CEO, Premium Technology
- Joshua Cohen, Managing Director of Financial Institutions, Mitigram
Competition Entrants:
Robert Lin, President & CEO, Seabury Trade Finance Exchange
Seabury TFX provides businesses with the freedom to run, to grow, and to succeed. As specialists in supply chain finance, the company’s expertise lies in having the “right financing product at the right place at the right period at the right price”-the Four Pillars’ of Seabury TFX. Seabury TFX excels at providing the “right financing product” as it ensures that manufacturing businesses can replenish their capital at the fastest speed and lowest cost to keep the supply chain moving. Seabury liberates businesses from the constraints of liquidity and gives them the capital necessary to be successful.
John Khaw, Co-Founder & CEO, Lucidity
Lucidity is a trade finance solutions provider in Singapore, specializing in automating manual processes and reducing the knowledge deficit that often contributes to documentation discrepancy. Lucidity’s platform enables companies to create, review and approve paper trade documents with its supply chain. Lucidity counts PSA (the world’s second largest port operator) as one of its key shareholders
Emma Weston, Co-Founder & CEO, AgriDigital
In December 2016, AgriDigital achieved the world’s first settlement of a physical agri-commodity on a blockchain between a farmer and a buyer in New South Wales, Australia and was recognised by Fintech Australia presenting AgriDigital the Excellence in Blockchain and Distributed Ledger Technology award for 2017. AgriDigital recently launched its digital supply chain platform for the agricultural sector and continues to work with blockchain and other novel enabling technologies to bring efficiency and transparency to global supply chains
Raj Uttamchandani, Executive Director, Trade Finance Market
Singapore-based Trade Finance Market is a fintech leader in providing alternative trade finance solutions for small and medium enterprises. TFM also develops blockchain-based tools to derisk and lower the cost of trade finance transactions – including InvoiceCheck, a tool designed to reduce invoice finance fraud.
Dimitri Kouchnirenko, Founder, Incomlend
Operating in Hong Kong and Singapore, Incomlend is a global invoice exchange where companies from different countries can fund their export receivables by selling them to private investors at a discount. The platform trades in multiple currencies and offers an integrated digital receivables discounting solution to both suppliers and buyers, dynamic discounting and factoring products. Investors’ capital is protected against debtors’ credit risk by world leading credit insurers
Gideon Ong, Co-Founder, RM-Tech Co
RM Technology Co Ltd, a Fintech company setup in China from 2015. The vision of this company is to make SMEs supply chain finance simple and safe. RM Technology collaborates with commercial banks, to provide enterprises and B2B portals with a payment, accounts and settlement platform, as well as enabling low cost financing
SME lender OnDeck Australia secures credit facility from Credit Suisse
From Global Trade Review (GTR) | By Finbarr Bermingham
OnDeck Australia, an SME lender, has closed a A$75mn asset-backed revolving credit facility (RCF) with the US branch of Credit Suisse.
The capital will refinance its current loan book in Australia and fund future originations. It will mature in June 2020.
A subsidiary of OnDeck Australia will be issued loans from the RCF. In turn, it will then purchase small business loans from OnDeck Australia. This revolving pool of SME loans will act as collateral for the RCF.
OnDeck Australia is a subsidiary of the US company OnDeck Capital. The parent company has also borrowed from Credit Suisse in the past: in December 2016, it closed a similarly structured US$200mn RCF with the bank.
Meanwhile, OnDeck Canada has recently opened a C$50mn RCF with Crédit Agricole, half committed and half available at the discretion of the lender.
According to Cameron Poolman, OnDeck Australia CEO, the online SME lending market in Australia is growing faster than its US equivalent did at a similar stage of development.
“We believe there will be a flight to trusted and quality providers. We expect to see fewer, stronger players as the Australian market consolidates over time. OnDeck Australia aims to be part of that market,” he says.
The market has long been dominated by the big four banks – ANZ, Commonwealth Bank of Australia, National Australia Bank and Westpac. However, successive scandals have plagued the established players, including CBA’s damaging money laundering impropriety, which saw it hit with a record fine this year.
Challenger banks and non-banks have been appearing, hoping to take advantage of a dissatisfied small business base. Judo Capital, a new bank with an ambition of servicing Australia’s underbanked SME sector, launched in March. In a statement, co-founder Joseph Healy said it was avoiding “increasingly centralised functions and cookie-cutter lending policies”.
Other banks are also making inroads to the big four’s slice of the pie. Recent research shows that HSBC recorded a 3.5% growth in market share last year, while Bank of Queensland recorded an 11.1% growth in market share, albeit from a low base.
The study from East & Partners showed that the average wallet share allocated to primary trade finance providers fell last year by 4% per year to 67.2% due to customer dissatisfaction with product and service lines, namely trade loans, e-trade solutions, value for money, pricing competitiveness and global representation.
The post SME lender OnDeck Australia secures credit facility from Credit Suisse appeared first on Global Trade Review (GTR).Half of Asia’s companies want to switch to non-banks for payments
From Global Trade Review (GTR) | By Finbarr Bermingham
More than half of Asian corporates are considering switching to non-bank providers for part of their payments services.
Furthermore, 19% are considering shifting their payment services to the non-bank sector, as the appeal of fast, digital settlements continues to grow among companies in the region.
Research from East & Partners, revealed at a briefing in Hong Kong today, shows that in other areas, though, companies in Asia are way behind the technological curve.
In the case of cybersecurity, for instance, more than one-fifth have experienced breaches to their systems over the past 12 months. But 40% were unaware if they have even been breached, a figure described by principal analyst Paul Dowling as “astounding”.
The overall picture painted was a dichotomous one. Asia is often presented as a society in which technology has great penetration, where customers are comfortable with digital products and where much of the innovation takes place.
The research suggests that big business is not averse to using technology to improve their finances. The vast majority say their banking has not been negatively affected by digitisation. One-third expect to start using biometrics imminently as a means of making payments more secure. At the same time, large corporations continue to drag their heels – almost 100% of the big companies surveyed by East & Partners still settle payments by cheque. Less than 20%, on the other hand, use mobile payments. Telegraphic transfers are used across the board.
All of this makes the noise around a “blockchain revolution” appear fanciful. Banks may well be pursuing the technology’s advancement with vigour, but companies are seemingly less enthused.
Belt and Road
Another hot topic in Asian trade finance is China’s giant Belt and Road Initiative (BRI), which will attempt to implement swathes of trade infrastructure along the old Silk Road land and maritime routes.
For many outside of China, the much-hyped programme has been a damp squib to date: most of the projects has been funded by Chinese banks with Chinese contractors and workers building most of the infrastructure under the BRI umbrella to date.
However, Asian corporates view BRI “as an enormous opportunity and potential for business”. Unsurprisingly, given that the cumulative trade volume across 71 designated BRI countries amounted to US$9.3tn last year (28% of global trade), many view it as an opportunity to grow their commerce. Naturally, they want their banks to help them fund this growth.
Almost 80% of large companies surveyed by East & Partners are demanding trade finance solutions from their banks to help them capitalise on BRI. Cash management and forex solutions, which go hand in hand with trade finance, are also high on their list of priorities.
However, within that, there’s a large subset of companies with knowledge gaps around what BRI actually is and what the opportunities might be (perhaps because the Chinese government is continually revamping and reviewing the scheme, to the extent that one trade finance banker quipped this week: “Everything is now BRI”).
Knowledge is particularly low in markets such as Thailand, Indonesia, Malaysia, UAE and Vietnam – all key BRI target markets, where Chinese banks have been dispensing officials in a way to attain corporate buy-in to their projects.
For Dowling, this presents an opportunity for trade finance banks to “take ownership of BRI” and to fill in some of the gaps their clients may have.
This is particularly true for banks based in Hong Kong: companies who want to benefit from the trade growth spurred by BRI expect their banks to be based locally, with Hong Kong’s transparent regulatory system providing, for those surveyed, a mitigating factor to the perceived risk of doing business on a Chinese-government led initiative.
The post Half of Asia’s companies want to switch to non-banks for payments appeared first on Global Trade Review (GTR).Australian agri exports go nuts for blockchain
From Global Trade Review (GTR) | By Finbarr Bermingham
A shipment of almonds has been exported from Australia to Germany using a blockchain-based trade platform.
Documentation for the trade of 17 tonnes of nuts was stored on an Ethereum-based private ledger built by the in-house blockchain lab at Commonwealth Bank of Australia (CBA), which funded the trade.
The bank onboarded Olam Orchards, an agricultural exporter, Pacific National, a rail haulage, the port landlord of Melbourne, stevedore Patrick Terminals and shipping carrier OOCL Limited. The pilot, the bank says, is another step towards proving that blockchain can be successfully used to execute trade, provided the ecosystem is collaborating.
The trade finance function was not conducted on blockchain. It was conducted in parallel, with the documentation subsequently digitised and moved onto the platform, Alex Toone, managing director for global commodities and trade at CBA, tells GTR.
CBA was among the first movers towards blockchain in the trade finance space. In 2016, it worked with Wells Fargo to execute a cotton trade from Texas to China using Skuchain’s Brackets technology.
The new shipment is viewed by the bank as a follow-up pilot to that Brighann Cotton deal, despite the shift to Ethereum and the fact that the trade finance process was done off-ledger. The bank also trialled the technology for use in an aluminium warehousing transaction in 2017.
Nevertheless, Toone says that the industry is a long way from broader adoption of blockchain.
“The industry is not able to have a quantum leap to blockchain, because we have industry standard documentation and processes we can’t just move away from. It’s going to be a path of learning for parties. We’ve got to engage with regulators and other participants in the broader supply chain if we’re to do transactions solely on the blockchain,” he says.
Smart contracts and the internet of things (IoT) were also deployed on the almond export, which saw the nuts delivered to Hamburg from Sunraysia, in Victoria. The parties involved were able to view and track the shipment and its storage conditions such as temperature throughout, using IoT devices.
“Trade inefficiency can be extremely detrimental to our business. It is vital that as an industry we look at emerging technology for ways to enhance the supply chain to develop a more transparent and efficient platform. This project has shown that through collaboration from all parts of the supply chain this can be achieved,” says Emma Roberts, supply chain manager at Olam Orchards Australia.
Bill of lading, certificates of origin and other customs documents were uploaded and stored on the blockchain during the almond export, which helped improve “transparency and efficiency”.
Indeed, in this instance the technology’s potential as a “track and trace” tool have been deployed, rather than its transactional capabilities. There is increased demand for higher provenance and greater traceability among commodity players in Australia.
“Through the work over the last 12 to 18 months there’s more focus on provenance. In the future, the purchaser of the almonds will be able to see what the farm was, when they were harvested, how long it took to get to port, how long they spent on various ships, what route it took and so on. Whether that’s in the agricultural space or even the metals space, where people are focusing on whether aluminium was produced through clean power, be it hydroelectric or geothermal, we’re finding more use cases for blockchain to solve,” Toone says.
Gerhard Ziems, chief financial officer at Pacific National, adds: “Since the expansion of globalisation, global supply chains have continued to become more complex. This project is unique as it looks to re-imagine how the supply chain communicates and shares information. Simple access to this information provides us with an ability to better utilise our assets and provide customers with better, more efficient services.”
The post Australian agri exports go nuts for blockchain appeared first on Global Trade Review (GTR).Clifford Capital launches Asia’s first project finance securitisation
From Global Trade Review (GTR) | By Finbarr Bermingham
Clifford Capital, a Singapore government-backed infrastructure financier, has launched Asia’s first securitisation of project finance loans, sourced from five commercial banks.
The portfolio, worth US$458mn, comprises 37 infrastructure loans, covering 30 projects spread across 16 Asian and Middle Eastern countries. They have been bundled into three notes and are to be listed on the Singapore Exchange.
The notes were issued by Bayfront Infrastructure Capital, a company sponsored by Clifford Capital. The banks providing the loans are DBS, HSBC, MUFG, SMBC and Standard Chartered.
The model was conceived by the Monetary Authority of Singapore (MAS) between 2015 and 2016, with Clifford Capital subsequently chosen to execute the transaction. Work on the deal began in 2017, with Moody’s required to rate each loan individually due to the fact that the project finance markets in these regions are unrated. This is essentially a new asset class.
Clifford Capital CEO Clive Kerner tells GTR that the company has earmarked some assets which, for various reasons – such as concentration and stage of construction– were not suitable for the first transaction, but could be suitable in future issuances.
In terms of pipeline, he adds that the size of the project finance markets in Asia and the Middle East, estimated to be up to US$40bn by Dealogic, give an indication as to the size of the asset pool the company can tap into.
The projects are at a range of stages, with 75.6% being operational with “stable and predictable cash flows” and the remaining 24.4% at the advanced construction stage. More than one-third are covered by export credit agencies, insurers or multilateral financial institutions.
They cover a range of sectors, with 33% coming in the conventional power and water industry, 2% in integrated LNG, 13% in renewables and 12% in metals and mining.
The investors involved include insurance companies, asset managers, pension funds, endowment funds and bank treasuries, Kerner says.
The majority of investors (65%) are Asian, but the 23% that comes from Europe is indicative of a growing trend across the trade and project finance space of western investors looking to pump capital into Asian markets.
“These are investors that are currently not actively engaged in the project and infrastructure finance space. Each of the classes of notes were comfortably oversubscribed prior to pricing. We feel the deal marked a major milestone in helping to create a new asset class for these institutional investors,” he adds.
Much is made of the trade finance gap in Asia Pacific, estimated to be around US$600bn by the Asian Development Bank (ADB). However, the same agency estimates the infrastructure finance deficit to be much more significant: the ADB estimates that by 2030, US$26tn needs to be invested in Asia’s infrastructure to keep pace with demand spurred by economic growth.
This equates to US$1.7tn a year, a figure which could swell as the effects of climate change become more manifest.
Clifford Capital’s strong financial backing is surely a draw for investors. The company’s shareholders include DBS, Standard Chartered, SMBC and Temasek – the sovereign wealth arm of the Singaporean government, which manages some S$308bn in assets. Indeed, the Singapore ministry of finance guarantees all of the company’s debt issuances.
It has also been a significant lender in its own right. Last year, for example, it was part of a syndicate that lent US$409mn to Singapore utility company Sembcorp for a power plant in Bangladesh.
However, the size of the Asian infrastructure market has also been attracting smaller players too. Boutique trade finance provider Bachmann & Welser announced plans to launch a US$2bn project finance fund targeting Asia, Africa and parts of the Middle East.
At the time of the announcement, company director Jeremy Brown told GTR that they are looking at energy projects in Thailand and Vietnam.
Commenting on the Clifford Capital securitisation, Alan Yeo, head of financial markets development at the MAS, says: “This transaction is a good example of how infrastructure can be developed as a mainstream, investible asset class to help crowd in institutional capital. It also showcases the role that Singapore can play as a full-service Asian infrastructure financing hub, by bringing together the right mix of industry expertise and networks.”
The post Clifford Capital launches Asia’s first project finance securitisation appeared first on Global Trade Review (GTR).Could Hong Kong’s open API revolutionise trade finance in the city?
From Global Trade Review (GTR) | By Finbarr Bermingham
The Hong Kong Monetary Authority (HKMA), the de facto central bank, has launched an open API framework for banks, and made its own open API available.
The move brings open banking to the city, an initiative which was implemented into law in the UK earlier this year and is now gathering momentum around the word, enabling new players to challenge incumbents.
Through the HKMA’s API, approved third parties will be able to access 130 sets of financial data. The regulator has also set commercial banks deadlines ranging from six to 15 months to make their own data available.
The essence of open banking is that it gives customers the power to share their own banking data with other companies – be they payment firms, fintechs or alternative lenders – which for years has laid unused in banks’ ether. This information is stored in a virtual socket, into which third parties can plug, with the customer’s approval.
The data can be extracted and used to provide services to rival or augment those of the banks. Some are suggesting that it may make less innovative banks completely redundant, particularly in a sector as old-fashioned as trade finance, where most processes are still paper-based and where the most incremental improvements are hailed as groundbreaking.
“People are worrying about tiny innovations that make things slightly better, when actually the likes of Paypal, Google or Facebook are going to remove the problem entirely. It will boil down to a question: is trade finance a necessary service, or is it a fix, on a fix, on a fix that could be swept away entirely?” asks Louise Beaumont, the co-chair of open banking and payments at techUK, a lobby group for the technology industry in the UK.
Speaking to GTR, Beaumont suggests that the HKMA’s initiative may open the door for tech titans to move into the trade finance space, providing services such as direct lending and invoice financing. It may also allow behemoths in sectors such as telecoms and energy to offer integrated services, creating an existential worry for banks which lack innovation and efficiency.
“My sense of it is that if you’ve lost the ability to innovate so completely that you haven’t had an R&D budget for decades, you’ve lost those genetics – you’ve atrophied. If you are genetically engineered without imagination, and the skills you need to survive now and in the future are imagination, creativity and courage, you tell me which banks have that at a board or executive level,” she adds.
It’s understood that tech giants around the world are already working on applications that can plug into the banks’ APIs. In Hong Kong, giants such as Alibaba and Tencent, which have made successful forays into financial services, in particular e-commerce-based trade finance, will surely be eyeing the sector hungrily.
Hong Kong is the latest in a series of jurisdictions to introduce such an open banking programme. The Monetary Authority of Singapore has plans to make its own data available through an open API initiative, while the UK’s open banking standards entered force in January of this year.
For fintech companies that have been working to innovate the trade finance process, this could potentially act as a leveller, removing some of the competitive, data-led advantages large banks have had for years.
Andrew Coles, head of banking solutions for Asia Pacific at Finastra, one of the world’s largest fintech companies, says that the benefits of open banking are becoming evident in trade and supply chain finance, having initially been focused on retail products.
“Full digitisation of the trade finance value chain has been a goal for many years. However, the advent of new technologies, such as artificial intelligence, robotic process automation and distributed ledger technology, combined with the increasing market adoption of open APIs, means we are closer today to reaching that goal than ever before,” he tells GTR.
Coles, who confirms Finastra’s plans to plug into HKMA’s open API, adds: “Never before has there been such a spotlight on the area of trade finance, with such a wealth of companies looking to innovate at all levels of the physical and financial supply chain. This level of investment can only be a good thing, and will surely lead to the breakthroughs the industry requires to modernise.”
The HKMA claims that the move will make Hong Kong’s banking sector more competitive. The special administrative region of China is one of the world’s largest banking hubs but has arguably lost its edge in recent years.
At a recent press conference in the city, head of macroeconomic research for Euler Hermes, Ludovic Subran, said that Hong Kong was no longer the hub of financial innovation it once was.
“I remember years ago, when I started in trade finance, bankers were sent to Hong Kong to learn how to structure. That is no longer the case,” he told reporters, bemoaning the inertia of the city’s dominant banks.
Arguably more than any other large Asian city, Hong Kong is dominated by big banks. The fintech scene may be buzzing, but it is still nascent. In the invoice financing space, a number of startups have caught the eye in recent months, but there is nowhere near the volume of platforms that you have in Southeast Asian cities such as Singapore, Manila and Jakarta.
Whether the HKMA open API will change this remains to be seen, but for supporters of the movement, it is being viewed as a step in the right direction.
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