The New Silk Road - Citibank · The Financial Professionals Forum 2012 The New Silk Road Latin America-Asia Trade Desk Othman Gamero, Latin America Trade Services Product Head, Citi

The Financial Professionals Forum 2012

The New Silk Road Latin America-Asia Trade Desk

Othman Gamero, Latin America Trade Services Product Head, Citi Transaction Services


Emergence of New ‘Trade Corridors’

World Trade Levels (1982=100)

Note: AE stands for Advanced economies. EM stands for Emerging markets Source: Citi Investment Research and Analysis.

0

200

400

600

800

1000

1200

1400

1600

1982 1986 1990 1994 1998 2002 2006 2010

Exports from AE to AE (up 4.6% YoY in 2000-10)

Exports from AE to EM (up 10.9% YoY in 2000-10)

Exports from EM to AE (up 10.6% YoY in 2000-10)

Exports from EM to EM (up 17.6% YoY in 2000-10)

Note: AE stands for Advanced economies. EM stands for Emerging markets. Source: Citi Investment Research and Analysis.

The most rapidly growing cross-border trade is International trade involving EMs. Trade between mature economies by 2010 was smaller than that between Ems.

Share of World Trade (12-month averages)

0%

20%

40%

60%

80%

100%

1982 1987 1992 1997 2002 2007

Exports from AEs to AEs Exports from AEs to EMExports from EM to AEs Exports from EM to EM

2010Jan-July


The Economic Power is changing through Emerging Markets

10 Largest Economies

(In Trillion 2010 PPP USD)

Present… … & Future Rank Country 2010 Rank Country 2020 Rank Country 2050

1 US 14.12 1 China 21.98 1 India 85.97 2 China 9.98 2 US 19.15 2 China 80.02 3 Japan 4.33 3 India 9.34 3 US 39.07 4 India 3.92 4 Japan 4.98 4 Indonesia 13.93 5 Germany 2.91 5 Germany 3.46 5 Brazil 11.58 6 Russia 2.20 6 Brazil 3.36 6 Nigeria 9.51 7 Brazil 2.16 7 Russia 3.33 7 Russia 7.77 8 UK 2.16 8 UK 2.83 8 Mexico 6.57 9 France 2.12 9 France 2.48 9 Japan 6.48

10 Italy 1.75 10 Korea 2.20 10 Egypt 6.02

Present… … & Future

Note: GDP measured in 2010 PPP USD. Source: Citi Investment Research and Analysis.


Latin America-Asia: Market Environment

What fuels this trade corridor? Trade between Latin America and Asia has grown 357% between 2000 and 2011, this was twice the growth rate of LATAM’s trade with the US • Mutual Supply & Demand: High Asian demand for soft

commodities from Latin America contributed to GDP growth in the region, resulting in emerging middle class and increase demand for low cost manufactured goods.

• Evolving Relationships: Increasing joint ventures, partnerships and foreign direct investment from both regions.

Who is trading within this corridor?

Industries: Agribusiness, Mining, and Fishing and Meat

Countries: Brazil, Peru, Argentina, Uruguay and

Colombia

• China represents > 40% of the Asian trading activity with Latin America, followed by Taiwan, Korea, Japan, and Singapore

• Chinese exports to LATAM in 2010 surged by 62% to $88.3 billion

• Chinese imports from LATAM grew by 42% in 2010 to $90.3 billion

18% 15%

42%

2%

21%

3%

26%

15%

36%

2%

21%

0% 0%

10%

20%

30%

40%

50%

Asia Europe NorthAmerica

Africa LatinAmerica

Rest ofWorld

Exports Imports

LatAm Total Imports & Exports, 2011

Industries: Consumer, Retailers, Electronics, Auto

Manufacturing Countries: Brazil, Mexico,

Panama, Argentina, Colombia, Peru

Import LatAm

Export LatAm

Export LatAm

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Asia’s Imports and Exports

According to Latin Business Chronicle (5/11): • Trade between LATAM and China grew 51.2% in 2010, to $178.6 billion • This was twice the growth rate of LATAM’s trade with the US • Chinese exports to LATAM in 2010 surged by 62% to $88.3 billion • Chinese imports from LATAM grew by 42% in 2010 to $90.3 billion

Importing Goods ExportingApparel/garments Bangladesh, Cambodia,

China, India, Indonesia, Malaysia, Philippines, Thailand, Vietnam

Australia, Bangladesh,Cambodia, China, Indonesia, Korea, Malaysia, Thailand, Vietnam

Electronics and machinery China, Japan, Korea,Malaysia, Singapore, Taiwan, Thailand

Australia, China, Japan, Korea

Motor vehicles, transportation equipment

Japan, Korea

Foodstuffs/seafood/agricultural commodities

Australia, Cambodia, Indonesia, Malaysia, New Zealand, Philippines, Thailand, Vietnam

Australia, China, India, Japan, Korea, Singapore, Taiwan, Vietnam

Oil, gas, chemicals Indonesia, Singapore

China Minerals and ores Australia

Re-exports Hong Kong, Singapore


Trends: Trading with China

Consideration and Potential Challenges

Key Consideration Buying from China Selling to China Opportunity for LatAm partner

High domestic cost of funding and tax regimes

in the region leads to mindful cash flow

management

• Exporter will typically prefer accelerated payments cash conversions over higher profit margins

• China importer will prefer to extend payment terms to optimize their cash flow

• Chinese partners look for off-shore options and values flexible relationships

Time to market

• Speed of response and process is very important/optimizing time zone and challenges • USD Liquidity challenges lead to discounting or financing needs.

• Speed of response and process is very important/optimizing time zone and challenges • Chinese Cos are very concerned with inventory turnaround times

• Speed up cash cycle by obtaining financing through importer relationship • Improve document processing to ensure speedy cash cycle

Chinese Cos. going global:

• Joint Ventures increasingly common; require new commercial terms, flexible payment schedules; and fast turnaround times; less documentation

• Open to new commercial partners with a increasing focus on LC usage to mitigate risk while promoting growth

RMB Internationalization

• Potential to increase negotiation power when settling trade in RMB

• Increase client base/sales by offering your Chinese clients commercial invoices and terms in RMB (essentially remains same payment now in RMB). Gain a competitive edge win and keep customers in the fastest growing markets


Trends: Cross-Border Trade Settlement & the RMB

Background

The Renminbi (RMB, sign: ¥; code: CNY; also CN¥, yuan) is the official currency of the People's Republic of China (PRC).

Prior to 2009, the RMB, it had little to no exposure in the international markets , transactions between Chinese companies and a foreign entity would have to be denominated in US dollars.

In 2009, the People’s Bank of China (PBOC) commenced a controlled liberalization of the RMB allowing it to be used anywhere in the world to settle trade transactions with many more RMB developments to follow.

According to SWIFT, value of RMB payments increased 17-fold since October 2010, the most spectacular growth of any major currency.

Growing international adoption of RMB payments

From June 2011 to June 2012, the number of countries and institutions processing RMB payments expanded from 65 to 91 (40% increase) and from 617 to 983 (60% increase) respectively.

Source: SWIFT


Trends: The Pace of RMB Internationalization

RMB x-border volume achieved total USD58.7bn equivalent in 2010, 1.7% of the total China x-border volume.

Accelerating the business momentum starting from Q4 of 2010, with the total volume of USD38.4bn equivalent, achieving 3.8% of the total China Q4 x-border volume.

The volume has reached to RMB 360bn in 2011 Q1, and RMB597bn in Q2 – 10% of the total China x-border volume.

Currently 80% of the participants in RMB trade are mainland Chinese importers.

More than 80% of the flow channel through HK.

Even with this impressive growth, RMB is still largely below its potential as a global currency; the trend is not about to stop.


Presenting Citi’s Latin America-Asia Trade Desk:

Based in Shanghai, China, this Latin America desk will connect you with Citi’s Latin America expertise and resources on-the-ground in Asia.

As link into the region on the other side of the world, this direct line to Asia from Latin America also allows clients to leverage from Citi’s extensive proprietary in-country presence in 23 markets in Latin America and 13 countries in Asia to implement market leading structured trade solutions that facilitates streamlined international trade management.

As both LatAm customers and Asian customers look to the other region to expand into new markets and develop new supply chain relationships, the LatAm-Asia Trade desk stands to deliver local expertise, global connectivity, and precision focus to bring the most innovative international trade structures and solutions to institutional clients striving to cross-borders in the most effective and efficient manner possible.


Citi’s Presence in Latin America

6,371 Employees225 Branches1,259 ClientsPresence since 1915

2 Employees33 ClientsPresence since 1965

41,834 Employees2,265 Branches500 ClientsPresence since 1903

14,111 Employees184 Branches

CHILE

PERU

ARGENTINA

ECUADOR

MEXICO

CCA

VENEZUELA

BRAZIL120 Employees2 Branches450 ClientsPresence since 1960

BOLIVIA

PARAGUAY

URUGUAY

555 Employees14 Branches689 ClientsPresence since 1920

19 Employees402 Branches619 Clients Partnership with Banco de ChilePresence since 1916

3,597 Employees87 Branches1,409 Clients Presence since 1914


49 Employees278 ClientsPresence since 1958


COLOMBIA2,102 Employees39 Branches913 ClientsPresence since 1916

Key Facts / Figures Citi Latin America has

been a leader in the region since the beginning of the 1900’s

Number of employees: ~70,000

Number of countries/territories: 25

Number of branches/sales points: 2,400+


Citi Asia Pacific at a Glance

• Citi is today’s pre-eminent financial services company with 200 million customer accounts in 100+ countries

• Our history Dates back to 1812

• Global Transaction Services provides cash management, trade, funds and securities services to Global and Local corporations across the world

• Strong embedded presence in every country

• In Asia, Citi is a leading transaction services bank offering market leading Securities, Cash, FX, and other Corporate Banking services

• We provide a consistent and uniform approach to Cash, Trade and Securities Services

Businesses:Institutional Client GroupGlobal Consumer GroupGlobal Wealth Management

Employees62,098

BranchesRetail 362Consumer Fin 555Branches:

RetailConsumer Finance

Branches:RetailConsumer Finance

1902 JP, HK, Ph, SG, IN

1929 AU

1959/61 MY / PK

1965 TW

1967 ID, KR

1979 NZ

1985 TH

1993/4 CN / VN

1902 JP, HK, Ph, SG, IN

1929 AU

1959/61 MY / PK

1965 TW

1967 ID, KR

1979 NZ

1985 TH

1993/4 CN / VN

Vietnam163

Malaysia4,4987

Thailand2,523147

Bangladesh173

Sri Lanka88

India7,98040329

Singapore5,97110

Indonesia2,2521956

Hong Kong & Macau

4,3562521

China3,48225

Taiwan5,47666

Korea5,47021787

Japan12,65831

Philippines4,5954015

Guam871

Brunei53

Australia2,23210

New Zealand41


Partnering with Citi in Latin America & Asia

Our trade network allows Citi to offer a full range of trade products throughout our proprietary network in 35 countries in Latin America and Asia with over 1,000 branches and more than 3,000 correspondent bank partners to facilitate trade services across the globe.

International Trade

Solutions

Mitigate risk associated with

International Trade Flows

Expand into new markets and new supply

chain relationships

Optimize cash conversion cycle

Reduce DPO/DSO

Streamlined international

trade management

systems & settlement processes


How Do I Improve My Business by Business Operations with Asia?

Your Need Market Driver Impact to your

business Citi Solution

Business Benefit

Capital Optimization & Trade Financing

• Uncertain times and increased risk environment creates liquidity shortage and lack of financing alternatives

• Importers are looking to pay later; Exporters want their $ earlier

• Importer: ATHS Solutions • Exporter Direct Collections

Extend payment terms Reduce financing costs Speed up shipment of goods from Asian suppliers

Speed up export payments from Asian buyers

Increase operational efficiencies and decrease operational costs

Access to more clients and business opportunities in the fastest growing markets

Settlement Diversification

• EM-EM Growth: Companies are entering new markets and supply chain relationships to grow business and reduce costs

• Increase risk from unknown markets • Regulatory, Commercial. FX…

• The RMB (元) Letter of Credit and other RMB denominated trade Settlement Solutions in Latin America

Processing Efficiencies

• Increased risks require increase control, visibility and generate increase costs,

• Inability to manage international supply chain impacts crucial business operations •Processing costs are increasing COGS, decreasing profit margins

• Corporate Asia LC Relay • CitiDirect for Trade • Export Document Preparation Services


Case Study: Consumer Goods Wholesaler

Client Profile

• Large wholesaler & distributor of apparel, and other consumer goods located in Panama with high volume purchases from Chinese suppliers

Client Need

• Improve working capital ratios by extending payment tenors with suppliers

• Crucial suppliers in Asia were reluctant to change commercial terms

Citi Solution • UPAS LCs

Client Benefits

• Extension of payments without impact to their supplier relationships

• Optimize working capital by obtaining financing directly under the LC structure. No additional import finance loan needed.

• UPAS LC allowed Chinese exporter to receive their payments at-sight (upon compliance of documents) from Citi’s Asia Trade hub in Singapore; while the Panamanian company settled their import payments with Citi at LC maturity.

*UPAS LCs: Usance-Payable at Sight Letter of Credit available in USD and RMB

Importer Financing under an LC structure


Capital Optimization: UPAS LC

Importer Financing through a LC

The Usance Payable at Sight (“UPAS”) L/C structure allows the applicant (LatAm importer) to offer sight payment terms to their Asian exporter while enjoying credit terms under the L/C.

The importer will issue a term LC to their exporter in Asia. Although the LC has a specific tenor; the LC terms allows the exporter to receive their full value payment at-sight from Citi’s Asia Trade Hub in Singapore (ATHS).

On the LC maturity date, the importer will settle LC with Citi for full value plus interest payment for the period between payment was made by ATHS and actual LC maturity.

Benefits

Importer (LatAm Client) Exporter (Asian Supplier)

Importer extends payment tenor and optimizes working capital

Direct Financing Savings: Importer enjoys favorable rates based on off-shore funding. Available in USD or RMB

Exporter is paid on time within at-sight LC terms. No impact to export trade payments.

No cost to the exporter.

Exporter can freely choose preferred bank their export bank as 2nd advising bank and negotiation bank.


Case Study: Retailer in South America

RMB Importer Financing under an LC structure

Client Profile One of the largest retailers in South America

Client Need

Client was in negotiations with their Chinese suppliers to extend payment tenors and wanted to offer Chinese suppliers various financing solutions to facilitate extension.

Some Chinese suppliers wanted to use LCs as a trade instrument and did not want to migrate to open account terms or a supplier financing program.

Citi Solution

Citi Asia Trade Hub in Singapore (ATHS): LC Confirmation with Discounting

Colombian company will issue a term LC that allows their exporter to discount the LC directly with Citi ATHS at a pre-negotiated discount rate.

Pricing matched to SCF program and allows supplier to receive the most competitive market pricing under the Client’s relationship with Citi.

LC allows exporter to obtain non-recourse financing based on the LatAm importer’s credit relationship with Citi.

Client Benefits

Client was able to meet their target working capital objectives by extending payment tenors with all of their suppliers in China by combining Citi’s ATHS LC financing structure and supplier finance program.

No costs to Importer; financing interest to exporter’s account


Case Study: Telecom Company in the South Cone

Client Profile

• Leading telecom manufacturer in the South Cone with high volume purchases from Chinese equipment suppliers

Client Need

• Client was in negotiations with their Chinese suppliers to extend payment tenor; as part of these negotiations Client needed a solution that allowed Chinese exporter to receive payments at sight while Client Company paid at LC maturity.

Citi Solution

• RMB denominated UPAS LCs issued locally

Client Benefits

• Offering Chinese suppliers the option to settle in RMB allowed our Client company to obtain a extension on their payment terms

• In addition to the extension afforded through these negotiations, the UPAS LC allowed the client to further extend their payment terms by obtaining financing directly under the LC structure. No additional import finance loan needed.

• UPAS LC allows their Chinese exporters to receive their payments at-sight (upon compliance of documents) in RMB from Citi SG; while the company paid Citi funds at LC maturity.

RMB Importer Financing under an LC structure

*UPAS LCs: Usance-Payable at Sight Letter of Credit available in USD and RMB


Trade Diversification: RMB LCs in Latin America

Letters of Credit continue to be the most utilized trade instrument in Sino-Latam trading activity. The RMB LC will allow companies in Latin America to issue, receive and settle RMB denominated LCs with their Chinese trading partners.

Ben

efits

Importers Exporters

RMB LC Issuance

RMB LC Financing

RMB Settlement for Import Payments

RMB LC Advising, Confirmation & Discounting

RMB Settlement for Export Collections

Buying goods in RMB may result in:

A broader supplier base, given the preference for Chinese exporters to invoice in RMB

More favorable and transparent pricing of goods

Minimized FX risk by funding purchases with RMB funding

Reduced supply chain costs

Selling goods in RMB may result in:

Competitive advantage and increase of sales in one of the largest growing markets

The buyer can lower overall purchasing cost as the transaction in the Buyer’s functional currency and allows for a natural hedge of FX risk.

Access to alternative RMB off-shore financing options

**The primary unit of renminbi is the yuán (元).

Solu

tions


Risk and Alternatives


Thank you!

Gracias!

Obrigado!

Thank you!

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Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.

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The New Silk Road - Citibank · The Financial Professionals Forum 2012 The New Silk Road Latin America-Asia Trade Desk Othman Gamero, Latin America Trade Services Product Head, Citi