Catalyst Bond: Our response to the volatile commodity trading market
As a leading trade commodity provider in the Asian market, Marketlend has seen firsthand the ongoing issues to do with the withdrawal of banks and insurers from the commodity financing market.
One of the most significant factors influencing the banks’ decision to leave the market has been the banking reforms. While this has seen a strengthening of the banking system, it has restricted the ability for banks to be involved in commodity trade finance in a manner similar to their involvement pre-2017.
Ancillary factors such as COVID-19, falling Asia prices, and an influx of fraud in the market have also deterred the sales divisions of many European banks from trying to convince their credit departments to continue to participate in funding these sectors.
At the best of times, the commodity trade industry is a thin margin business, but the industry now has been further crippled by the ethos of capital preservation and loss minimisation in the banking sector.
Block chain and supply chain digital technologies have been trumpeted as a cure-all solution to a lot of these issues. Yet this digital technology has not expanded to the stage where it would be well accepted and integrated across the entire industry, nor would it be able to handle the high volume of transactional items to be efficient for industry players.
There is no doubt that the fundamentals of the industry remain. Many countries located in Asia, particularly Singapore, continue to be the industry’s major players. However, there is a need for the industry to change to remain viable into the future, and that change is likely to have dramatic impacts on some of the players in the market.
Marketlend has responded to this need to remain adaptable to market circumstance by implementing a new product called the Catalyst Bond. How it works is quite simple.
- Marketlend’s product funds and replaces the exposure to the debtor held by a trader, bank, or secured lender. The product will commonly be sought when it is unlikely that the debtor will make full payment by the due date.
- In this case, Marketlend purchases the exposure at a discount subject to confirmation of accepted liability from a recognised insurer and assignment of the rights to that insurance.
- Marketlend then immediately pays the trader, banker or secured lender a discounted price for the exposure.
- This product, the Catalyst Bond, is then issued to Marketlend investors who are interested in funding these types of exposures.
With close to around $350 million funded to date and an ability to fund a subsequent $350 million, Marketlend is well positioned to fund and purchase these types of exposures in this volatile yet with growing market.
If you’d like to know more about this please contact our offices at email@example.com