Bond Issuance 6.50% p.a. indicative rate in USD (Swap equivalent level in EUR and GBP: indicatively 5% p.a. in EUR and 5.50% p.a. in GBP) For a 2yr Issue from a USD500mio Note Issuance Programme Listed in Luxembourg
Transaction Highlights - A strategic way for bond investors to obtain a high yield return from a diversified trade financeportfolio - All underlying transactions are synthetic investment grade due to the use of A- or better rated credit insurance and letters of credit and have a maximum tenor of 124days - Strong origination team with extensive experience across markets - Bankruptcy-remote SPV structure ring-fences the excess spread to provide additional protection for investors 2
Synthesis Trade Finance II SA Bond Issuance The notes will be : - Listed on the Luxembourg Stock Exchange Stock Exchange listed - Available for trading on the Euro-MTF market - Deliverable in Euroclear, Clearstream and CREST The proceeds of the notes will be used to finance short-dated, secured, Secured trade finance transactions to a diverse pool of clients. Every transaction will have either a Letter of Credit or Credit Insurance backing it, as well as appropriate legal charges over the financed goods. The underlying transactions will have no market risk because they are financing existing back-to-back contracts. The goods themselves will primarily be commodities. The transactions will be originated by Synthesis Structured Commodity Trade Finance Limited and purchased by Synthesis Trade Finance IISA. This document gives an overview of the planned issuance programme. 3
What is Structured Trade Finance? Structured trade finance is where a finance company funds a transaction on behalf of a third party. In our case we achieve this by directly purchasing the goods from their Self-Liquidating supplier and then selling the goods directly to their purchaser, instantly removing a substantial portion of the credit risk. Strong Returns The advantage for investors is that trade finance portfolios : Enhanced Security Are self-liquidating Have strong returns Trade finance transactions are Typically trade finance transactions typically 30-60 days so there is a have very strong returns due to the clear exit path for the funder. It also short tenor. By efficiently keeping allows funders to quickly reduce money deployed, this can be exposure to borrowers, sectors and converted to strong annualised Low Default Rates geographies returns Have strong security Have low def ault rates The funder generally has direct Historically, structured trade finance ownership or a charge over the transactions have very low default assets being financed as well as rates and very strong recovery rates, access to a Letter of Credit or Credit thanks to the strong asset security Insurance 4
Structured Trade Finance in numbers $6trillion >50% 80% 0.02% WTO Member SME share ofthat Of theSME share Is thehistorical Exports per year trade requires trade defaultrate finance Despite global economic SMEs continue to However, as deliveries According to the uncertainty, international globalise, moving their take longer, SMEs turn to International Chamber of trade continues to grow goods in greater size, trade finance to bridgethe Commerce Report in2011, across greaterdistances cashflow gap between default rates in trade production andpayment finance stood at around 0.02% - better than investment gradebonds* * http://iccreport2015 Product TotalExposure($mio) Total DefaultedExposure ($mio) Exposure-weighted DefaultRate TransactionDefaultRate Export L/C 988,434 235 0.02% 0.01% ImportL/C 1,656,528 1,210 0.07% 0.08% Performance Guarantees 1,023,561 1,154 0.11% 0.17% Loans forImport/Export 3,154,407 5,323 0.17% 0.22% 5
Why is there an opportunity for investors in Structured Trade Finance? With the phased implementation of Basel III and tighter lending criteria from banks, many SMEs have lost access to the funding that they previously had. Banks are reducing exposure due to : - High regulatory costs of capital - Out-dated technology and KYC infrastructure - A reluctance to lend on a transactional basis The Global Financial Crisis created a g ap W ith banks less willing to lend to SMEs an opportunity has been created for smaller, more nimble financial organisations to enter the market. Using a combination of experience and understanding of global trade flows, a new breed of trade finance houses is emerging who can lend based upon assets, increasing security whilst maintaining strong returns. 6
How do we choose our client base? Here at Synthesis, a large part of our success within the group comes from working exclusively with borrowers who have a strong track record in their industry. We look for a minimum of three years of successful trading by the management team and a strong business model with good margins across their product range. Strong management A. Synthesischooses who to lend to based on these criteria C. B. Strong Strong client base business model MARKET KNOWLEDGE 7
Deal selection In Structured Trade Finance the key to a successful portfolio is not just to choose the right counterparties, but also to select the deals with the right characteristics. Each commodity has its own idiosyncrasies, but in all transactions we seek verification of the value of the goods and will, where possible, take a charge over the goods. In the event of non-payment, we would liquidate the assets, hence our preference for non- perishable, generic commodities. Loan-to-value Underlying asset Typically we look at a “r eal ” The underlying asset must be valuation of the asset in terms of something that we can take control what price it can be sold at in a of, check the quality of and re-sell variety of jurisdictions if necessary. It is always non- perishable Credit Enhancement Monitoring The transactions that we finance Are we able to identify, monitor and are always backed by a Letter of exercise control over the asset at Credit or Credit Insurance from an any point during the transaction? investment grade counterparty 8
RiskMitigation Key RiskFactors Risk of non-payment - Synthesis only lends to companies or management teams with a significant track record in the relevant commodity WorkedExample - Both the arranger of the deal and the debtor are required to pass our KYCprocess - Each transaction will have in place a Letter of Credit or Credit Purchase cost of the goods : USD100 Insurance to act as a safeguard Contribution by the Client : USD10 Risk of rejection of - Goods are checked for quality where necessary and certified Contribution by Synthesis :USD90 goods by an independent inspector before the transaction is funded Country Risk - In conjunction with leading trade finance law firm Holman Sales Revenue of the goods :USD105 Fenwick Willan, Synthesis Trade Finance SA continually Returned to Synthesis : USD92 monitors any potential risks, in particular those relating to Returned to Client :USD13 currency restrictions, sanctions or embargoes Commodity Price Risk - Synthesis Trade Finance SA does not engage in transactions where the return is in any way linked to the price of the Marine Insurance during transit :Typically underlying goods. Each transaction will have a sales contract 1 10%of purchase price (USD1 10)with at a pre-agreed price so that the return is fixed Synthesis as first loss payee - In the event of non-payment by a borrower, Synthesis Trade Finance SA would first look to enforce the terms of the Credit Insurance before payment : Typically contract. It would then seek to sell the commodity to another 90% of sale price (USD94.5) with Synthesis as buyer. It is only after that that they would seek recovery first loss payee (note our exposure is only through the Letter of Credit or Credit Insurance. By USD90) concentrating on fungible, hard commodities, the risk of depreciation of the asset is minimised Risk of Documentary - Facility Documentation is arranged by Watson Farley & Williams and all transactions are documented by Failure experienced professionals 9
What goods do we finance? All of the goods that we finance are non-perishable and fungible, so that shipment delays do not accept the value of the asset and we could, in an extreme situation, find a replacement buyer. Oil and EnergyProducts Industrial commodities Eg petrol, aviation fuel Eg polymers, metals With buoyant consumption of oil Metals and polymers are businesses that products around the world and often have regular contracts that allow us to long delivery times, there is remain well invested by continually moving continual demand for funding money from one contract to the next Agricultural produce Semi-finished or finished goods Eg grains and beans Eg generic pharmaceuticals Agricultural goods are often A proportion of our portfolio may seasonal which makes it harder for be used to finance non- small companies to raise finance. commodities as long as the Using our strong market knowledge margins are strong and the we can seek out mutualy beneficial products are generic and liquid relationships 10
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