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Trade Services Utility (TSU) Bank Payment Obligation (BPO)

Case Study – First Forfaiting on TSU/BPO in the world

Vale International S.A.

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

SWIFT

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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved

Vale’s Challenges and Benefits

Company Profile

2012 Revenues of USD 46.5 billion

Main product Iron ore (68.2%)

Approximately 100 clients worldwide (Iron Ore)

Main market is China (34%)

Challenges

Competitive commodities market requires a secure and cheaper alternative to L/Cs

L/Cs at sight for USD 18 billion with Chinese clients

DSO (Days Sales Outstanding) is between 25 and 30 days

Key Benefits

Reduce the DSO by approx. 10 days (including internal processes efficiency gains) with a financial gain over USD 37 million/year

Freeing up Working Capital – USD 600 million

Reduce costs for customers

Reduce document delivery costs

Reduce the risk of discrepancies

Improve access to Trade Financing products to our customers

Reduced environmental impact - reducing paper usage in extra copies of the shipping documents for the banks

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BTMU’s Challenges and Benefits

BTMU’s Strengths

Largest global network of any Japanese financial group

Strong credit rating

Pioneer for the TSU/BPO business in Japan and across Asia

Winning new clients in new markets: BTMU can offer TSU-based services as a new non-traditional trade settlement service

New opportunity to provide trade & supply chain finance services

Challenges

Maintain the trade business

Provide a new range of solutions to service the open account market

Provide more process efficiency, but without losing the business information

Key Benefits

Open door to new business opportunities

Provide quicker Account Receivable / Payable

Provide easier and faster operations

Meet the market requirement for banks to collaborate more on risk and client on-boarding

No original documents handling, no paper checking. Automated solutions

Better efficiency in operation. Easier and faster operation for banks

Reduce costs of document handling

Reduce costs for skilled human resources

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Case Study : First FFT on TSU/BPO in the world

In July 2013, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) arranged a new TSU/BPO settlement service with Vale International S.A. (Vale)

BTMU is the first bank in the world to provide “Forfaiting (FFT)” on TSU/BPO: upon seller’s request, the bank purchases an export receivable (Open Account) with BPO at a discount with no recourse to the seller

BTMU Singapore branch executed FFT on the same day of TSU/BPO data matching with BTMU Bangkok branch through TSU system, which was all completed on the same day Vale presented the dataset information

Vale saved approx. 10 days and gained from increased safety, operational streamlining & cost reduction

① Sales

contract

Supplier (Exporter)

LC Advising Bank

(Exporter’s BK)

Buyer (Importer)

L/C Issuing Bank

(Importer’s BK)

⑤ Export doc

⑦ Assignment of A/R (NR: Non-Recourse)

⑧ Discounted payment (Principal – interest)

④ Export goods

⑥→ Notice of acceptance

⑨ Settlement of fund on due date

③ L/C open

③‘ Notice of L/C opening

② L/C application

Normal L/C FFT FFT on TSU/BPO

①

Purchase

Order

(P/O)

Vale Int’l (Exporter)

BTMU SGP

Buyer (Importer)

BTMU BKK

② P/O data

④ Shipping data

⑥ Notify matching result

④

Export goods

& Dispatch

shipping doc

(Original)

② P/O data

③ Input P/O data

⑦ Notify matching result

⑩ Settlement of fund

on due date

TSU

system

③ Check P/O data ⑤ Input shipping data

⑧ Assignment of A/R （NR) (After data matching)

⑨ Discounted payment (Principal – interest)

⑤

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Subject Description

Main function

Importer’s Bank guarantees the payment of the importer

Exporter’s Bank purchases export receivable (Open Account) with BPO at discount, non-recourse to the seller (exporter) , upon seller’s request

FFT Trigger

Successful data matching on SWIFT TSU system according to the baseline agreed between all the parties

Type of risk to mitigate Buyer’s credit risk and insufficient fund risk, payment delay risk

Type of BPO Obligation Primary Obligation

Documents Originals are exchanged between importer and exporter

Rules ICC URBPO (Uniform Rules for Bank Payment Obligation)

Fees Similar as L/C FFT

Remarks Wording of “BPO” is mentioned in P/O as the payment method for settlement safety

Key Features of FFT on TSU/BPO

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1st Stage: BTMU makes presentation to Vale and Vale expresses interest

2nd Stage: BTMU and Vale co-work to ask importers to introduce TSU/BPO

Brazil, SGP

Tokyo

BKK

Tokyo

Importer

Presentation to Vale

Internal Discussion

Soft Working Mandate

Discuss Appropriate Transaction

for shifting TSU/BPO

Instruction to make presentation to importer Presentation

Internal Discussion

TSU/BPO Contract

Discussion between Exporter and Importer supported by BTMU

1s

t S

tag

e

2n

d S

tag

e

1

2

3

4

5 6

8 7

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BTMU’s Set-up for Live Usage

TSU/BPO Contract 10

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Correspondent banking contract

Contracts and URBPO

Seller’s bank

in Singapore

Buyer’s bank

In Thailand

Buyer

Purchase order:

BPO is one option of payment conditions

TSU Payment

Service Agreement

BPO Agreement

URBPO

adopted by ICC

TSU

TSU Payment

Service Agreement

BPO Agreement

No additional bilateral

agreement is required

Seller / Exporter

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Buenos Aires

Sao Paulo

Beijing

Shanghai Guangzhou

Hong Kong

Jakarta

Tokyo

Kuala Lumpur

Singapore

Bangkok

Taipei

Santiago

Live Ready Testing

Sydney

Manila

BTMU’s Global TSU/BPO Network

BTMU Locations Offering TSU/BPO (As of July2013)

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Increasing & diversifying trade with emerging countries

Sophistication of trade control demands (Operational streamlining, Safety and early settlement, Cost reduction )

Increasing trade risk & workload of trade operation

Why TSU/BPO now ?

Reduce number of L/C transactions

Accelerate A/R reconciliation

Reduce settlement period to support suppliers’ working capital needs

Use a trade portal with end-to-end service

To improve visibility and traceability on trade control

Importer

Demands

Reduce number of L/C transactions

Reduce costs related to L/C (e.f. discrepancy fees)

Reduce document handling operations for D/A and for export bills for collection

Use a trade portal with end-to-end service

To improve visibility and traceability on trade control

Exporter

Demands

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#1 : Operational Streamlining

Customers’ Benefit #1

Easy procedure for BPO issuing

Reduce operational burden of treating complicated L/C and trade documents

Smooth reconciliation of payment & A/P (Account Payable) through prompt import data receipt

Increase possibility of earlier taking import goods

Increase chance of enhancing better relationship with exporter by diversifying settlement method

Importers’

Benefit

Decrease shipping documents presented to banks in traditional documentary settlement

Reduce operational burden of creating draft and shipping documents

Reduce discrepancy workload

The bank bears responsibility for any oversights

Reduce workload and operation time for documents checking

Mitigate risk of importer cancelling order or changing order

Exporters’

Benefit

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#2 : Safety and Early Settlement


Safer than open account payment

Improve traceability (Importer could make payment after confirming import goods data)

Decrease discrepancies arose from importers’ operation for early L/C issuing

→ Early Settlement (Importer could issue BPO just after having P/O with exporter on TSU settlement)

Importers’

Benefit

Increase possibility of early fund collection

Improve traceability (Exporter could ask importer clearly to execute payment after confirming data matching or acceptance of data mismatching by importer)

Speedy settlement by decreasing discrepancies (Data matching point is limited on TSU in compare with traditional documents checking)

In case of BPO, the credit risk is transferred from importer to the obligor bank

Exporters’

Benefit

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#3 : Cost Reduction


Decrease inter-office cost through import operational streamlining

Increase possibility to decrease banking charge (e.f. L/G, T/R) to receive import goods

Importer could have chance to negotiate better terms and conditions through early settlement

Decrease import financing cost by effective usage of import credit facility

Importers’

Benefit

Decrease inter-office cost through export operational streamlining

Reducing the DSO (Days Sales Outstanding) and freeing up working capital through early fund collection

Chance to decrease various banking charge like discrepancy fee, L/C advising charge, postage etc

Reduce finance cost by using BPO related trade financing

Exporters’

Benefit

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BTMU operational flows for the TSU/BPO

IMPORTER IMPORT BANK EXPORT BANK EXPORTERＴＳＵ

P/O

Copy

MATCHING

MatchedContract Data

MATCHING

DataInput

DataInput

TSUAppli-

cation

P/O

Copy

TSUAppli-

cation 　TSUApplication

TSUApplication

　Shipment

Ship Doc

Copies

BillsBought

Appli-

cationShippingDocument

Matching Result(Shipping Info)


Operation forBills Bought(withBPO)

MatchingResult

　MatchingResult

ReceiveFunds

　MatchingResult

Dataresubmiss-ion on TSU

3

Operation forsettlment ofBills Bought

9

5

Operation for B/R(Bills for receivable)Arrival

6

Operation forSettlement ofImport B/R

7

Arrival Notice

Payment/settlement

Matching Result(Contract Info)

Data Inputon TSU


BPO Advice

1

BPO issuanceoperation (utlizeLC framework)

2

BPO balancedeductOperation

8

Data Inputfor TSU

4

Match/Accept

BPO

Ship Doc

Originals

Original documents to be sent directly from Exporter to Importer

MatchingResult

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Export Bank ExporterImporter Import Bank

SWIFT

LCADV.

SendMT70X

Imp DocArrival

　LC Apply

ShipArrangement

PresentShip Doc

Order forsettlement

Credit forBills forCollection

SettlementOperation

ReceivePayment

DocumentDelivery

Credit

LCAppl

BL&INV

B/CAppl

PurchaseOrderTrade Contract

　LC ADVICE

Prepare LCApplication

PrepareShip Doc

ReceiveImportDoc

ImpDoc

Release

SendMT40X& 20X

Imp ArrivalAdvice

ImpDoc

Receive

DocChecking

DocChecking

Receive

MT70X

ReceiveMT40X& 20X

Trade Contract

DispatchExportDoc

EXPORTER

Notice Notice

Notice NoticeArrival

IMPORTER Importer's Bank Exporter's Bank

ShippingDocument

ＴＳＵ

P/O

Copy

MATCHING


MatchedContract Data

MATCHING

DataInput

DataInput

DataInput

TSU

Appli-

cation

P/O

Copy

TSU

Appli-

cation 　TSUApplication

TSUApplication

　Shipment

Ship Doc

Copy

B/C

Appli-

cation




Present Copy

Automatic Payment(Import Settlement without L/C)

MatchingResult

MatchingResult

　MatchingResult

ReceivePayment

　MatchingResult

PurchaseOrderTrade Contract Trade Contract

Operation forReceiving the

Payment

SettlementOperation

Flow chart of A/S L/C Flow chart of TSU

Vale saved approx. 10 days and gained from increased safety, operational streamlining & cost reduction

Comparing the Flows

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The information herein is provided for information purposes only, and is not to be used or considered as an offer or the

solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. Neither this nor any other

communication prepared by The Bank of Tokyo-Mitsubishi UFJ, Ltd. (collectively with its various offices and affiliates,

"BTMU") is or should be construed as investment advice, a recommendation to enter into a particular transaction or pursue

a particular strategy, or any statement as to the likelihood that a particular transaction or strategy will be effective in light of

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