gtas

STRUCTURED TRADE AND COMMODITY FINANCE ADVISORY SERVICES

Rue Richard-Wagner 1 CH- Geneva 1202

Contents

1. Why Select GTAS

2. Overview of STCF

3. Scope of Advisory

4. Detailed Scope of Advisory

5. Functional Overview of the Financial Collateral Control System

6. Contact Us

2

WHY SELECT GTAS?

3

Why Select GTAS?

Global Trade Advisory Services S.A (GTAS) is proud of it dedicated team of professional staff whose collective aim is to develop and deliver new tools and strategies that can help its

clients succeed. They are driven, ambitions and excited about putting their knowledge and

skills to the test

We advise global clients who include many of the worlds leading organizations in their respective fields. We also work with government institutions, national market leaders and

other highly respected organizations in key sectors in the Structured Commodity Finance

Industry.

Our Industry focus, which is fundamental to our approach, has enabled us to develop in-depth knowledge of our clients businesses and to provide them with an informed perspective

on the issues they face.

4

Why Select GTAS?

5

Our offering

We are offering you a team comprising of highly experienced financial

advisory professionals.

Our team draws on a wealth of knowledge that spans over 20 years in Structured Trade and Commodity Finance

Our Proposal

Drawing on international precedent and with our understanding of your requirements, we would propose to analyze and present to you a timely

deliverable.

A proven methodology and approach which is not just process driven but involves providing genuine advice and hands on involvement in project

delivery

Why Select GTAS?

6

Our company is specialized in providing STCF Advisory services to banks and other financial institutions world wide

Specialized in Structured trade and advisory services

Our Expert staff are able to draw on their wealth of experience from various aspects of Structured Trade and Commodity Financing; Legal, Operational, and Risk

Expert Staff

We have provided advisory services to the Islamic Trade Finance Corporation. As part of our role as advisors we designed a portfolio of bank products compliant with Sharia Law for ITFC. We designed a business process overview and standard operating procedures for each financing product, indicating the relevant risks and turn around time for each step, job descriptions for the team. As well as a comprehensive list of supporting documents

Relevant Experience

Our Strengths

Why Select GTAS? Delivering Value

7

We will bring insights from current best

market practice

We have a deep sector knowledge

We can on focus on key value drivers and understand potential

We bring Wide Operational

Experience in STCF

Our senior team will be available to work with you

Our Team will be focused on leveraging experience and achieving value addition

Why Select GTAS? Driving Value

8

Adding value to the engagement

Steps

Planning

Execution

On-going Communication

Deliverables

GTAS Value Proposition

Prioritize key areas of concern

Leverage our experience in providing STCF advisory services

Continuous communication: Through Progress meetings and

regular communication

Bank Product Portfolio: 1. BPOs 2. SOPs 3. Sub flow Charts 4.

Supporting Documents 5. Job Descriptions

Benefits to Bank

You will have confidence that we are focusing our efforts on the areas of prime concern.

GTAS support facilitates a rapid process in order to enhance value to the Bank with little

disruption to daily operations

No Surprises Approach; ensuring adherence to

objectives and time frame

Strengthened Bank Product Portfolio with enhanced middle office system and procedures

STCF OVERVIEW

9

Overview

What is STCF?

STCF involves granting working capital loans or financing against trading or floating assets of a company. Such

loans can either be paid out on a short-term basis or revolved up and down based on the changing level of the

borrowers collateral.

Specifically STCF is an extension of credit against a companys trading assets on a collateral margin basis, with strong emphasis placed on establishing and maintaining control of the collateral by the financing institution.

Why Financial Institutions should offer STCF?

There are many reasons why financial institutions should begin to grant loans on the basis of the borrowers trading assets and gradually enter into this transactional field. In general, financial institutions prefer providing

credit based on the strong equity base of borrowing companies. But what needs to be understood is that a large

majority of companies in any economy are small to medium-sized enterprises. Many are in a state of continuous

growth and do not meet the criteria of balance sheet based financing. They, however, represent a vast

financing market, and offer a large and attractive business opportunity for the financial institutions. Offering STCF

products can help financial institutions remain competitive, maintain or increase their market share and at the

same time earn higher yields and spreads.

Challenges in offering STCF

Providing STCF is somewhat more time-consuming than other types of financing, because financing is on a

revolving basis against a percentage of eligible collateral, which requires constant policing and monitoring of

the relevant loan documentation.

10

Overview

Understanding technical aspects of a commodity trade:

Additionally because of the specialized nature of STCF, assistance form technical staff s needed in making

decisions when contemplating entering into new relationships with asset-based financing customers. For

example, technical staff assistance is required to understand the underlying commodity, its supply or value chain

and business of a customer so that financing can be structured using physical movement of the commodity

stocks and thereafter monitored and controlled using the same information.

Intensive paperwork:

Due to the volume and technical nature of paperwork involved, many officers at a financial institution will not be

able to properly service these credits. Also, many officers are only generalist or have another specialized lending

background and may not have the ability to relate technical (operations) paperwork with the financing

considerations. Therefore, they need the support of specialized staff within their bank or institution.

Constructive possession over collateral:

Protection received by signing security or pledge agreements and filling of the same agreements under UCC or

registering them under applicable laws of the country only is illusory. In reality signing and registering such

documentation does not necessarily mean that the underlying collateral actually exists at all times during the

financing.

Adoption of the proper dominion and control of the financial institution over the collateral through

implementation of a valid bailment (transfer of possession) in order to render constructive, continuous, exclusive

and notorious (visible) possession over the underlying collateral against which the financing is critical to the

success of financing.

11

Overview

Mitigation of performance risk:

Assurance of performance under a commodity trade financing agreement requires skilled staff stationed in the

field to ensure that the underlying stocks meet the quality, weight and quantity parameters specified in the

financing agreement entered into between the financing institution and the company, any storage facility

where the stocks may be stored must be suitable for such storage and stocks in transit are adequately supervised

to ensure timely delivery as intended. Mitigation of these afore-mentioned risks is necessary to ensure proper

performance under the financing agreement and protection of interests of the financial institution in the

financing transaction.

In summary successful STCF offering requires financial institutions to fully understand, document and monitor the

physical movement and storage of stocks of commodity when considering to finance their clients trade flows using structured financing products. The advisory services by GTAS will assist the bank in designing systems and

procedures that allow them to better:

evaluate and document commodity trade flow underlying a financing transaction,

evaluate and approve commodity storage facilities and associated logistics partners,

identify potential risks and devise mitigation of the same,

prepare transaction flows that are critical part of STCF term sheets,

structure financing transactions and finally

monitor and control the during transaction life cycle.

The target objective of the advisory is to embed transaction risk management practices into day to day

transaction evaluation, approval and execution systems and procedures and make on-ground operational

information available to the STCF team in timely manner that allows them to take proactive decisions.

12

SCOPE OF ADVISORY

13

Scope of Advisory

The broad scope of the advisory services to financial institutions involve the following areas:

sign a Advisory Service Agreement

understand objectives of STCF department

understand current STCF products and procedures

understand current Standard Operating Procedures, Business Process and related documentation

propose new end to end process flow and procedures and subject to receiving approval develop detailed Business Process Overview, Standard Operating Procedures

Subject to receiving approval, support in implementation and launching of the same

In order to edit and remodel the banks Business Process Overview and the specific SOPs, it is critical to have a full and comprehensive understanding of the existing internal processes and the departmental organization of all

units, functional areas, as well as role and job descriptions of the relevant staff members within the Bank.

GTAS has developed generic Business Process Overview which is presented in the following slide. This Business

Process Overview represents deal lifecycle and gives an overview of the processes regardless of financing

product including support functions such as legal, administrative and month-end functions.

In summary, the lifecycle of a deal consists of the following functions:

Preparation and Product Approval

Deal Preparation and Negotiations

Deal Capture Authorization

14

Scope of Advisory

Deal Collateral Risk Management - Payments

Deal Collateral Risk Management Securities Management

Deal Collateral Risk Management - Repayments

Deal Renewal and Termination

Deal General Administration

15

Generic Deal Life Cycle A-Preparation and Product Approval

A.1-Bank Product Design

A.1.1- Identification of new needs and proposal for new products A.1.2- Approval of new product

Potential Deal Approved Deal Closed Deal

B-Deal Preparation and Negotiation

C-Deal authorization and capture

D- Collateral Risk Management - Payments

E- Collateral Risk Management -Securities

Management

F-Collateral Risk Management - Receipts

G-Credit Facility Amendment, Renewal

and Cancellation

B.1- Pre Deal Approval

B.1.1- Identification of new and existing client B.1.2- Client need assessment B.1.3- Nomination of collateral controller

B.1.4- Completion of preliminary screening review

D.3- Security Margin

D.3.1- Security margin amount calculation D.3.2- Confirmation of payment

G.1-Amendment

G.1.- Credit Facility Amendment

E.3. Insurance Monitoring

E.3.1- Insurance premium payment E.3. 2- Insurance claim

E.1- Create and Link Securities

E.1.1- Link collateral to deal and stakeholders E.1.2- Assessment of the updated stock position

A.2- Policy Guidelines &Eligibility Criteria

A.2.1- Policy guidelines Process A.2.2- Eligibility Criteria Approval Process

B.2- Deal Preparation

B.2.1- Completion of due diligence and KYC B.2.2- Clearance from treasury B.2.3- Review and clearance from risk management and legal point of view

B.3- Pre Deal Compliance

B.3.1- Nomination of third parties B.3.2- Issuance of indicative terms & conditions B.3.3- Drafting and submission of the credit memorandum B.3.4- Draft of legal documentation

B.4- Deal Approval

B.4.1- Credit committee approval

B.5- Documentation Sign- off

B.5.1- Legal documentation sign- off

C.1- Deal Assignment

C.1.1- Assignment of the deal

D.1- Deal

Effectiveness

D.1.1- Effectiveness condition completion and clearance D21.2- Declaration of effectiveness

C.2- Deal Capture

C.2.1- Deal profile and modus operandi design C.2.2- Capture of deals details and deal creation in the IT System C.2.3- Assignment of a disbursement officer

D.4- Process Payment

D.4.1- Release of funds D.42- Release of fund

E.2- Monitoring Securities

E.2.1- Stock control E.2.2- Price valuation and check E.2.3- Trigger reached process E.2.4-- Price Decrease Prrocess

G.2- Renewal

G.2 Deal Preparation G.2 Credit Committee approval G.2 Effectiveness Condition completion

E.4- Payments to Collateral Controller

E.4.1- Collateral controller payment is done

F.3- Process Receipt

F.3. Payment of the sale invoice F.3. Reception of Funds F.3. Release of Goods

E..5 Periodic Reporting & Monitoring

E.5.1- Issuance of periodic reporting & monitoring

G.3- Deal Closure

G.3- Net Payment/Receipt G.3- closure off the deal

A.3 Third Party Approval

A.3 Third party

company approval

D.2- Disbursement Conditions

D.2.1- Request for disbursement D.2.2- Disbursement conditions clearance D.2.3- Issuance of disbursement ticket

F.4- Release Securities

F. 4.1- Effectiveness of Release F.4..2- Update of Release

H-Deal Month End

H1- Stock Recon.

Stock Reconciliation

H2- Fin. Recon.

Financial Reconciliation

H.3- Interest.

Interrest Calculation and allocation

H.4- Statements

Produce Statements

H.5- Income Reports

Income Reports

H.6- Tax Reporting

Tax Reporting

H.7- Trial Balance

Trial Balance

F.2- Issue Invoice

F.2- Issue Invoice

F.1 Purchase request

F.1-Purchase request

Step 1: Preparation & Definition

17

Phase 2:

Preliminary

Discussions

Phase 1: signing

Service

Agreement

Hold meetings to understand:

banks objectives for current or new STCF department

services and products offerings

Any previous and current experiences in respect of STCF

transactions

Any prevailing regulatory guidelines, limitations etc.

Availability of written operating guidelines and procedures

Relevant organogram, decision making / approval process,

segregation of duties, checks

and balances etc.

Based on information collected

during initial meetings:

Sign Service Agreement

Request and receive information

Present advisory proposal for review and approval

Sign advisory agreement or as appropriate

Step 1: Continued

18

Phase 3: Information Request

Phase 4: Meeting with FI

Pursuant to Signing of Service Agreement :

Current Rules & Guidelines

Policies

Eligibility Criteria

Term Sheets and Templates

Financing Product Templates / Program

KYC

Organogram

Roles & Responsibilities

Internal Procedures / SOPs

Existing portfolio of clients

Based on documents received:

Organize meetings

Review of GTAS Business Process Overview and how it may be applied

Discussion on major functional areas such as Pre-deal Process, Execution, Administration and Reporting

GTASs methodology of documenting sequence of events in a supply chain

Risks & Mitigants

KYC / KYCC / Due Diligence

Commodity Profiling

Third Party Stakeholder Due Diligence

Implementation of Maker-Checker Rules, Segregation of Duties, Roles and Responsibilities

Phase 5: Information & Process Review

The information received will be benchmarked against industry best practices and GTAS will assist FIs in:

Developing process for periodic review and tracking of collateral under STCF transactions

Initiating and organization periodic reviews to ensure all collateral securities are accurate and enforceable

Providing procedure / process for monitoring exposures under risk sharing arrangements with affiliates

Providing procedure to determine that collateral obtained is of sufficient value to cover risk exposures

Instituting procedure for regular inspection to ascertain the state and value of stocks pledged as

security

Step 2: Preparation of Business Process Overview

19

Phase 1: Draft Business Process Overview

Phase 2: Review of Current IT Systems

Based on review of documents during step 2 and interactive sessions held GTAS will:

Draw up draft Business Process Overview

Prepare checklists for each stage of Business Process Overview is prepared such as deal preparation, negotiation, management, administration and

closure / termination

GTAS team will:

Review current IT systems

Assess whether IT systems are aligned with the current business process

Benchmark current IT systems against industry best practices

Identify any changes needed to align the IT systems with new Business Process Overview

An Excel based interim solution may be proposed till the scale of STCF operations reaches critical

mass to justify implementing a full-fledged collateral control and management system

Phase 3: Identify Areas of Improvement

Based on review of information and documents:

Identify areas of improvement within current operating model

After submission and review of Phases 1 and 2, hold meetings to

discuss with STCF team and management to discuss the findings

Organize workshop to discuss proposed changes to the existing rules, guidelines, eligibility criteria, product program, key functions, roles and responsibilities, job

specifications and job allocations

Based on the outcomes of the meetings and workshops, recommend Target Operating Model and implementation of the same

Step 3: Roll Out of SOP & Related Documents

20

Phase 1: Draft SOP for STCF Department

Phase 2: Assessment & Approval by the FI

After review of existing documents, organization structure, operating procedures, operating procedures,

rules and guidelines, a new set of SOPs is prepared in line with the recommendation proposed by GTAS and approved by the FI.

The draft of revised SOPs is provided to the FI for internal assessment and approval. Subject to receiving

approval, implementation stage is initiated.

Phase 3: Establishing Revised Rules

Upon completion of Phase 2, finalize:

Revised Business Process Overview suggesting revised Target Operating Model for the FI

Revised SOPs

Revised set of Rules and Guidelines or Policies and Procedures

Revised Eligibility Criteria and Checklist for assessing

stakeholders

Revised Department Structure

Revised Segregation of Duties & JDs

Revised Approval Process

Revised DD Guidelines & Questionaires

Step 3 Continued

21

Phase 4: Approval by the FI

Phase 5: Finalize SOPs for each Department

The revised draft SOPs together with the Business Process Overview Rules & Guidelines, Department Structure /

Organogram, Eligibility Criteria is approved by the board of FI or any other authority after review and internal deliberations.

The SOP for each function (Front Office, Middle Office and Operations) is completed together with the

approved Business Process Overview, Rules and Guidelines, Department Structure, Eligibility Criteria, Questionnaires, Job Descriptions etc

and these are rolled out by the FI.

Step 4: Design & Roll Out of IT Systems

22

Phase 1: Approval by the FI

Phase 2: Roll Out of IT Systems

Based on the revised SOP, Rules and Guidelines, Eligibility Criteria and Job Descriptions, new IT systems are

designed in line with the segregation of functions and duties between the front office, middle office and back office. The functionality of the system

should take into account the segregation between front and middle office and the hand off to operations.

Once the design is approved by the financial institution, a full specification IT system will be developed and then

rolled out in phases depending on the criticality of the project.

Time Line

23

Step 1

(Week 1)

Step 2

(Week 2 &3)

Step 3

(Week 4 & 5)

Step 4

(To be discussed and agreed

with the bank)

FUNCTIONAL OVERVIEW OF FINANCIAL

COLLATERAL CONTROL SYSTEM

24

Overview of Financial Collateral Control System

Overview:

To develop a Financial Collateral Control System (System) designed on the following broad principles:

Legally, maintain segregation of duty to provide control from a funding perspective separate to the security control which underwrites the loan.

To generate and track the financial loan, track the financial transactions (loan payout, invoicing, interest, etc.) against that loan, track the securities that underwrite the loan and provide a mechanism to reconcile

the securities in the financial system to the physical stock controlled by a collateral controller.

Track the Human Resources part of the transaction in terms of responsibilities and activities.

Reconcile data such that segregation of duties is clear and the ability for fraud and collusion is limited, whilst system control end to end (from the weighbridge to the provision of the loan to final stock delivery) is

maintained through interfacing systems and data.

As the data are entered and saved in the system by people, the system should track all the people in charge with the financial loan, the financial transaction (loan payout, invoicing, and interest calculation) as much as

the people involved in the credit risk management, the management of the commodity exposure.

Key financial controls include:

1. Credit risk management (granting clients credit and management of limits)

2. Management of commodity exposure through discounting

3. Management of interest on a loan granted, revaluation of securities which underwrite the loan (mark to

mark transactions and margin calls)

4. Key event and time based triggers to manage financial exposure and reconciliation to physical and

issue stock security statements

5. Management of the human resources part (tracking of the team in charge of pre-deal process,

approval of the financing, allocation of people on the field to control security / stock, allocation of

people in charge of release of security etc.

25

Overview of the IT System Functionality

The System should track both financial transaction as well as the actual security specification related to a particular transaction.

Financial transactions can be used to reconcile entries against physical Bank statements whereas security specifications can be used to reconcile stock against stock reports received from Collateral Control Companies.

At each step, the System should track the people in charge of collecting the data in the field (for the physical risk management part of the deal) and the people in charge of handle the financial data (for the financial risk management part of the deal).

Upon creation of a new deal, the System should allow for various deal structures to be designed rather than being restricted to certain product solutions only. This allows for versatility in marketing product solutions, as well as meeting the needs of Banks/Investors, Clients and Insurers. The system should be designed such that fundamental risks are identified for a deal, and then the deal transactions are generated based on these defined risk parameters. This allows a multitude of structuring types to be generated, but keeps effective control once a deal is approved through effective task and risk management under that structure.

The System should allow for deal structures to be linked to a specific Clients portfolio. The aforesaid will allow for tracking both limits and profitability.

Master data should be captured for commodities, locations, countries, agents in the field (inspectors, supervisors), price data, etc., to ensure consistency of information within the System.

These deals structures are further broken down into detailed stock items (various transaction), which can be tracked individually for price movements (margin calls) and transaction maturity / expiry dates. Specific deposits should be linked to the transaction (stock item) level.

Prior to financing a transaction, the finance value of a particular transaction must be determined by a discount calculation pre-built into the system. (Prices are linked to a specific commodity / Reuters / Bloomberg / Platts / or any other market recognized interface, Trigger prices; Strike prices, etc are captured upon deal structure creation).

Information and expiry dates captured upon creation of a discount calculation is determined by the quantity; weight; quality and location of the warehouse receipt received from the Collateral Control Company.

26


With each transaction financed, the actual security specification and expiry dates are captured separately on to the System and linked to the specific transaction, this is an internal method that allows for stock

reconciliation (check and balance).

Upon loan repayment, the System should allow for invoices to be issued to the Client, invoices include total stock quantity to be re-purchased; original loan amount; ad-hoc costs; fees charged and interest charged.

The System should allow for partial repayment at any point in time.

Once an invoice has been issued, the System allows for monitoring invoice settlement date via debtors age analysis report.

Security specification will be released based on guidelines set within the relevant agreements.

The System should allow for partial security specification to be released as well as the replacement of a security specification.

The System should be designed to diarise and monitor certain critical events and expiry dates, once action needs to be taken users will receive a red flag, red flags will remain open until action has been taken which

results in the alert being removed - no flag can be manually closed. All the red flag alerts will be tracked in

the system in order to know who was responsible of acting on certain critical events.

The system should automatically track price movements against set trigger levels to generate margin call or mark to market transactions.

The system should be designed to manage multiple sources of funding, where moneys from Banks, funds and specific investors can be tracked across deals and reported on effectively. This allows for versatility

when dealing with multiple funders across the world.

Each role within the System has access granted based on the responsibility of such a role, therefore the user linked to such role will have limited access accordingly.

The system should be designed in such a way that each specific agent can be tracked across a specific deal and reported on effectively; it allows the management of the Human Resources in the STCF.

Limits are comprehensively tracked within the system.

Limits monitoring covers Client; Off taker; Investor; Fund; Country and Commodities.

27


The System should be able to calculate interest with both the issue of an invoice (up to settlement date) as well as at month end based on the deal structure interest rate and on the daily Bank balances.

The System should allow for creation of invoice settlement dates both in current and future months, ensuring accurate interest calculations on the loan amount.

The system should allow for the option to allocate the monthly calculated interest to the individual stock items (transactions) or to issue an interest invoice directly to the Client for immediate settlement of interest.

A number of reports should be made available which range from client reports to audit trail reports and stock reports for insurance and reconciliation purposes.

The following architectural design elements have been taken into account:

The system should have archiving functionality such that speed is not compromised once transaction volumes increase. It is designed for very large transaction volumes and effective filtering so that only

current transactions are shown, yet old transactions can be viewed as required. Zero balance stock

items are not displayed as a default.

Very effective audit trails and reporting is provided in the system

The architecture should allow for roles to be based across multiple geographic locations. This allows the system to be accessed from any geographic location with internet capability across the world. No

other technology is required besides internet access to use the system, making it very versatile and

inexpensive.

As mentioned in the functionality section above, there is a lack of product based restrictions without allowing for the loss of key controls (i.e. a risk matrix based deal approach)

The database should be designed such that data exports to multiple other systems (collateral management systems and Banking systems) can be generated with ease. The design also caters for

interaction with Reuters and other database sources.

28

CONTACT US

29

The System should be able to calculate interest with both the issue of an invoice (up to settlement date) GLOBAL TRADE ADVISORY SERVICES SA,

GENEVA, SWITZERLAND

(TEL: +41 22 919 9111

email: [email protected]

Mr. Bogdan RASCANU

System should allow