Structured Trade Finance - Export of Wheat

1. STRUCTURED Trade Finance – EXPORT of WHEAT
Players
Korea Trading Corporation (KTC), Pyongyang, North Korea
Kamal Kunj (KK), New Delhi, India
Malik Finance (MF), Mumbai, India
Malik Impex (MI), Mumbai, India
Food Corporation of India, Mumbai, India
Koryo Commercial Bank Ltd., Pyongyang, North Korea
Deutsche Bank, Frankfurt, Germany
Standard Chartered Bank, London, UK
ICICI Bank, Mumbai, India
Role
Korea Trading Corporation (KTC): They are North Korea based importer of
Wheat and the SBLC opener
Kamal Kunj (KK): They are India based agent of the buyer and joint
beneficiary with Malik Finance of SBLC and joint executor of exports along
with Malik Impex
Malik Finance (MF): They are beneficiary of SBLC along with Kamal Kunj
Malik Impex (MI): They would export the wheat and execute the transaction
along with Kamal Kunj
Food Corporation of India (FCI): They will sell the wheat to Malik Impex for
cash/cheque to be paid prior to taking the wheat (as per specifications) from
FCI godown
Koryo Bank: They will open the SBLC on behalf of KTC
Deutsche Bank: They will add their confirmation to the SBLC
Stan Chart: They will lend against the SBLC and remit the entire proceeds to
ICICI Bank
ICICI Bank: They are India based banker of Malik Finance, which will pay off
FCI and other related agencies and also open a Performance Guarantee
favouring FCI on behalf of Malik Finance
Financial Instrument: Standby Letter of Credit
Tenor: 365 Days
Commodity: Milling Grade Wheat
Quantity: 487800 MT
Shipment: 25000 Х 19 + 12800
Port of Shipment: JNPT
Price: Euro € 205 PMT CIF North Korea.
Total Amount: € 99,999,000 =00
Author: Partho H. Chakraborty 1

2. STRUCTURED Trade Finance – EXPORT of WHEAT
Time Frame
1. 15 Days for FCI to transport the wheat to JNPT
Security:
1. SBLC
Requirement:
1. Beneficiary has to pay FCI by cash or cheque prior to delivery of
wheat. ICICI bank will have to pay FCI on behalf of Malik Finance.
2. ICICI Bank will also have to pay other charges such as Freight,
Insurance, etc.
3. ICICI Bank will have to give a Performance Bond to FCI for ` 260
Million
Transaction:
This transaction has 2 legs. The first leg is to pay FCI & other parties and also
give FCI a Performance Guarantee on behalf of Malik Finance and the
second leg is to send the bills to KTC after exports have been made
1. KTC, MF and KK enter into a Contract whereby the KTC will buy the
wheat as per specs, MF will finance the transaction and KK will be the
joint financer with MF and joint executor with MI
2. MI and KK enter into a Contract where MI will procure the wheat and
export it to KTC and KK will make payments to all parties concerned
and also arrange the shipping part of the transaction
3. MI & KK and FCI enter into a Contract whereby FCI allots the wheat to
MI and KK against advance payment and performance bond.
4. KTC opens a SBLC confirmed by Deutsche Bank favouring MI
5. MI requests his banker Standard Chartered Bank to raise funds against
the SBLC. Alternately even ICICI Bank can raise funds against the
SBLC
6. Stan Chart keeps SBLC as security and remits funds to ICICI Bank
7. ICICI credits Malik’s account but will not allow him to use the funds
directly. ICICI Bank will directly pay off to FCI and other agencies prior
to each shipment and release the balance amount after each shipment
8. ICICI Bank gives FCI a Performance Guarantee on behalf of MI
9. ICICI Bank pays to FCI for the first tranche of wheat. Likewise they will
make 20 such payments.
10. ICICI Bank will also pay for shipping, insurance, freight, etc. 20 times
11. FCI will transport the wheat up to the port (JNPT)
12. MI exports the goods to KTC and submits documents to ICICI Bank
13. ICICI Bank forwards the documents to KTC
14. ICICI Bank deducts its charges and releases the balance to MF. This
process would be repeated 20 times
15. KTC receives the wheat in North Korea
16. Transaction Ends
Author: Partho H. Chakraborty 2

3. STRUCTURED Trade Finance – EXPORT of WHEAT
Indicative Cost:
Earnings: ICICI
S.No. Particulars Rupees (`)
1. Export L/C Advisory Fees (Flat Fee) 1,000=00
2. Performance Guarantee Charges (1% Flat) 26,00,000=00
3. Management Fee @ 0.25% of € 99,999,000 =00 (Flat Fee) 1,31,24,868=75
___________________________________________________________________
TOTAL 1,57,25,868=75
Net Earnings: ICICI Bank: ` 1,57,25,868=75
Receipts: Overseas Bank and Associates
S.No. Particulars EURO (€)
1. Funding Costs - Euro LIBOR (2.26%) + 75 Basis Points P.A. 3,009,969=90
2. Commission (1.25% Flat of € 99,999,000 =00) 1,249,987=50
___________________________________________________________________
TOTAL 4,259,957=40
Net Earnings: Overseas Bank and Associates: € 4,259,957=40
Receipts: UTL
S.No. Particulars EURO (€)
1. Reimbursement of SBLC 99,999,000 =00
___________________________________________________________________
TOTAL 99,999,000 =00
Payments: UTL
S.No. Particulars EURO (€)
1. FCI 51,102,857=14
2. All Other Costs – Railways, Freight, Insurance, etc 27,772,000=00
3. ICICI Bank 299,540=36
4. Overseas Bank and Associates 4,259,957=40
5. Other Charges 12,000,000=00
TOTAL 95,434,354=90
Net Earnings: UTL: € 4,564,645=10
Note:
1. The Exchange rate is taken at 1Euro = ` 52.50
2. All other costs such as Courier charges, SWIFT, etc. at actuals
Author: Partho H. Chakraborty 3

4. STRUCTURED Trade Finance – EXPORT of WHEAT
Flowchart
Korean Port, 24 Korea Trading 4 Koryo
Pyongyang, Corporation, Commercial Bank
North Korea Pyongyang, 23 Ltd., Pyongyang,
North Korea North Korea
5
1 22
1
Malik Finance,
Mumbai, India Deutsche Bank, 8 Standard
Frankfurt, Chartered Bank,
Germany London, UK
9
7 10 6 8 9
ICICI Bank, Mumbai, India
21 12
1 1
11 14 20 15
12
Kamal Kunj, New Malik Impex, Mumbai, India Other
Delhi, India 2 16 Agencies –
Shipping,
Insurance, etc
19 3 13
JNPT, Nhava Sheva Food Corporation of
18 17 India, Mumbai, India
Note: FCI will deliver the wheat to JNPT
Author: Partho H. Chakraborty 4

5. STRUCTURED Trade Finance – EXPORT of WHEAT
Table.
STEP DAY EVENT
NO. NO.
1. 1 Tripartite Agreement between KTC, MF and Kamal Kunj
2. 2 Bipartite Agreement between MI and KK
3. 3 Contract between MI and FCI
4. 4 KTC requests Koryo Bank to open SBLC
5. 5 Koryo Bank opens SBLC and sends it to Deutsche Bank for Confirmation
6. 6 Deutsche Bank sends SBLC by SWIFT to ICICI Bank after adding their
Confirmation
7. 7 ICICI receives SBLC and intimates MF
8. 8 ICICI sends the SBLC to Stan Chart for payment
9. 11 Stan Chart checks the authenticity of SBLC and then makes the payment
10. 12 ICICI receives payment from Stan Chart and intimates MF
11. 13 MI requests ICICI to pay FCI
12. 14 ICICI pays FCI
13. 14 FCI gives receipt to MI
14. 15 MI requests ICICI to pay for Shipping, Freight, Insurance, etc.
15. 16 ICICI pays for Shipping, Freight, Insurance, etc.
16. 16 All relevant agencies give their bills to MI
17. 30 The Wheat from FCI reaches JNPT
18. 31 The Wheat is loaded on to the Ship
19. 37 Bill of Lading is given to MI
20. 38 All Documents given to ICICI Bank
21. 39 The ship with Wheat sets sail for North Korea
22. 40 ICICI forwards the documents to Koryo Bank
23. 45 Koryo Bank forwards Documents to KTC
24. 61 KTC collects the Wheat
61 TRANSACTION ENDS
Note:
1. Point 8 & 9 indicate that either ICICI Bank approaches a bank like Stan
Chart or let Malik arrange it with their overseas counterparts to get
funds against it
2. If the overseas bank raises funds, then they may keep it and disburse the
same to ICICI bank on specific instructions from ICICI Bank
Author: Partho H. Chakraborty 5

6. STRUCTURED Trade Finance – EXPORT of WHEAT
Note: Names, if any are Suggestive and are strictly not to be taken on
Face Value. It is only to give a feel and touch of how transactions
can be structured and names are indicative
This article is meant for education purposes only and it is not be
reproduced for any commercial purpose by print or electronic
medium whatsoever
This case study is written by:
Partho H. Chakraborty
A - 305, DSR Spring Beauty Apts., 124/1, ITPL Main Road, Brookefields, Kundalahalli,
Bangalore - 560 037, India
Tel: +91 80 420 50293, Cell: +91 99863 22504
email: parthohc@airtelmail.in; parthohc@rediffmail.com
Skype: parthohc01
Author: Partho H. Chakraborty 6