Utilising RenMinBi Trade Financing - Sime Darby Plantation Experience

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Content 1.   Background

2.   Settling Trade in Renminbi (RMB)

3.   Challenges faced by customers in settling trade in RMB

4.   Solution: FX-embedded Letter of Credit

5.   Proposal for G2G consideration

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•  Sime Darby - selling palm oil to China since 2008

•  Products sold - RBD palm olein and stearin •  Trades are predominantly invoiced in USD

•  Shipment size >10,000 mt

•  Most customers seek trade financing - preferred option of financing is via Usance Letter of Credit (LC), for up to 6 months

Utilising Renminbi Trade Financing – Sime Darby Plantation Experience

Background

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•  Key considerations made by customers before deciding on using RMB or USD for trade settlement :

1.   Cost of trade financing (LC discounting rate)

2.   USD-RMB conversion rate (Forex)

3.   Perception of USD/RMB performance for forward months

Settling Trade in Renminbi (RMB)

Utilising Renminbi Trade Financing – Sime Darby Plantation Experience

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1.   Cost of trade financing (LC discounting rate) •  LC discounting rate for USD is cheaper than discounting rate

for RMB

2.   USD-RMB conversion rate (Forex) •  USD to RMB conversión rate is evaluated

5.   Perception of USD/RMB performance for forward months •  The strengthening of RMB against USD

Challenges faced by customers in settling trade in RMB

Utilising Renminbi Trade Financing – Sime Darby Plantation Experience

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Solution: FX-embedded Letter of Credit

Benefits : •  Buyer enjoy financing cost based on USD cost of fund (lower than RMB) •  Buyer enjoy extended period of financing (180 days) raising RMB LC

•  Sales contract in USD, converted to RMB •  Buyer pays in RMB (usance LC) •  Receivables to be financed in USD to keep the cost low •  Different solutions options available to suit customer’s appetite in FX exposure

Buyer (China)

Issuing Bank

Advising Bank

Sales Contract in USD, converted to RMB Issued RMB LC

Submit RMB Invoice

Financing RMB value in USD

(USD financing rate) 1 2

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Utilising Renminbi Trade Financing – Sime Darby Plantation Experience

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Utilising Renminbi Trade Financing – Sime Darby Plantation Experience

Use of RMB trade financing stands to increase sales of palm oil to China

i.  Invoicing in RMB lower transaction cost for buyers

ii.  More buyers can enjoy an extended period of financing – beyond 90 days.

iii.  Buyers easier access to RMB credit lines

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Proposal for G2G consideration

Bilateral agreement between

Bank Negara Malaysia (BNM) and People’s Bank of China (PBC) for Palm oil

commodity to address the high interest rates in offshore RMB borrowing

Utilising Renminbi Trade Financing – Sime Darby Plantation Experience

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Thank You