Transcript Regulatory requirements Imports

Risk Free Business in
Risky Markets
K.C.Ponnappa
Vice President - Trade Services
HSBC Western India
18 July 2015
Agenda
• Risk in International Trade
• Mitigating the Risk and Financing Options
- LC Confirmation & Negotiation
- Forfaiting
- LC Transfers
18 July 2015
Have you given any thought of
considering such unforeseen
situations while accepting
overseas orders!!!
18 July 2015
Risk in International Trade
• Country Risk:
- Political Risk
- Financial Risk
• Bank Risk:
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Country Risk
• Political Risk
– Risk that a sovereign host government will
unexpectedly change the rules of the game under
which businesses operate
• Expropriation risk
• Disruptions in operations
• Protectionism
• Blocked funds
• Loss of intellectual property rights
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Country Risk
• Financial risk
– Refers more generally to unexpected events in a
country’s financial, economic, or business life
• Currency risk
• Interest rate risk
• Inflation risk
• Unexpected changes in the current account
balance
• Unexpected changes in the balance of trade
18 July 2015
Bank Risk
The faith on an LC depends on the trust
you have, that the Bank will pay in case of
failure on the side of the Buyer
• What if the bank is not reliable??
• What if they don’t pay???
• What is your comfort level with an unknown bank in a
foreign country???
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Lower Risk Implies
• Lower hurdle rates for investment
• Increased investment
• Increased growth
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LC Confirmation
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Why should you go in for LC
confirmation ?
• Reduce bank and country risk effectively by
enjoying the security of payment commitment from
both the issuing bank and the confirming bank
• If HSBC confirms the LC, and documents are
presented in compliance with the LC terms,
HSBC will make payment under LC (without
recourse)
18 July 2015
FORFAITING
18 July 2015
WHAT IS FORFAITING?
• Forfaiting, In The Simplest Expression, Is The Discounting Of A Debt
Instrument Such As Bill Of Exchange Or Promissory Note, Without
Recourse To The Previous Holder
• In Other Words, An Exporter Can Now Discount His Bill (Which Falls
Due At A Future Date) With A Forfaiter And In The Process Transfer
The Future Risks Associated With The Bill To The Same Forfaiter
• Forfaiting Originally Derived From French Word A’forfait, Which
Means Surrendering Of One’s Right
18 July 2015
GENERAL FEATURES OF FORFAITING
• Credit Period Ranges From Short-term To Long-term
• Usually Trade Related
• Without Recourse To The Exporter
• Fixed-rate Finance
• Financing On 100% Contract Value
• Financing In Major Currencies Such As USD, EURO, JPY
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General Features Of Forfaiting….cont’d
•
Immediate Payment To The Exporter Under Discounting
Of Bills
•
Risk on Commercial Bank
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ADVANTAGES TO EXPORTER
•
Improves Cash Flow
•
Relieved Of All Political, Transfer And Commercial Risks Associated With The
Transaction
•
Reduces Bank Borrowings And Improvement In The Company’s Balance
Sheet
•
Reduces The Interest Rate Risk
•
Reduced Foreign Exchange Risk
•
Saving On Administrative Costs
•
Individual Order Acceptable
•
Quick Response (On Bank Related Primary Obligor’s Risk)
•
Simple Documentation
18 July 2015
FORFATING TRANSACTION INVOLVING A LC
(1a) COMMERCIAL
CONTRACT
EXPORTER
(5) EFFECT
SHIPMENT
(6)
(4)
PRESENT
LC
ADVISING DOCUMENTS
FOR
NEGOTIATION
(1b)
FORFAITING
CONTRACT
IMPORTER
(9)
PAYMENT
WITHOUT
RECOURSE
(2)
LC
APPLICATION
(3) LC ISSUANCE
HSBC
FORFAITING / LC
NEGOTIATING BANK
(7) PRESENT DOCUMENTS
FOR ACCEPTANCE
(8) ACCEPTANCE ADVICE
(10) PAYMENT CLAIM AT MATURITY
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LC
ISSUING
BANK
Transferable Documentary
Credits
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What is a Transferable DCs?
• Definition
- A Transferable DC (“TFDC”) is a DC
where the beneficiary has the right to:
• request a bank to transfer the credit
in whole, or in part, to one or more
second Beneficiaries; and
• to substitute his drafts and invoices
for those of the second beneficiary
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TDFC’s a Solution
• When are TFDC’s used ?
- When the Beneficiary of the DC is not the producer or
exporter of the goods, but is a middleman
- The Beneficiary will have contracts to source and supply
and may wish to keep the identity of the buyer from the
supplier, and vice versa
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Process Flow
Middleman
Seller
Importer
1. CC
1. CC
Beneficiary
2. TFDC Appl.
4. TFDC Advised
5. Trans Req.
7. TFR DC
Advised
Adv/Nom Bank
Seller’s Bank
Issuing Bank
HSBC
6.DC TFR
3. TFDC Iss.
HSBC123
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Transfer without substitution
• “Documents in strict conformity with the terms and
conditions of this transferred credit are to be
handled by the transferee’s bank and forwarded
directly to the DC opening bank for payment”
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Transferable
Transferred
18. B/L
8. Goods Shipped
Middleman
Seller
Importer
1. CC
2nd Benef.
Beneficiary
Availability
13. $
12.Docs
3. TFDC Iss.
HSBC123
2. TFDC Appl.
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Transferring
Bank
17. Docs
6.tfdc iss
HSBC123
Adv/Nom Bank
4. TFDC Advised
10.Docs
5. Trans Req.
14. $=10
11.Sub Docs
14. $ = 11-10
9.Docs Pres
2nd Adv Bank
1. CC
Issuing Bank
HSBC
Benefits to beneficiary
• No need for banking facilities
• Can provide supplier/manufacturer with comfort
of a transferred DC
• Substitutes documents and makes a profit
• Can sometimes disguise the identity of the
supplier/manufacturer from ultimate buyer
18 July 2015
Questions
18 July 2015
Contacts Details
Arpit Shah – Trade RM Ahmedabad
Phone: 079 40204800
eMail: [email protected]
K.C.Ponnappa
Phone: 022-6746 5577
eMail: [email protected]
18 July 2015
Thank you !!!!!
18 July 2015