By Dawn Zeng
THE commodities sector has received a boost with an enhancement to the Global Trader Programme.
The programme is an initiative by International Enterprise (IE) Singapore which allows companies to enjoy a concessionary tax rate on qualifying income. Structured commodity financing (SCF) has been added to the list of qualifying activities under the Global Trader Programme. It takes effect immediately.
SCF is used by commodity producers and trading companies to manage the performance risks of counter-parties, particularly those doing business in developing markets with higher risks. Traditional financing looks to the flow of funds and the sources of the money. But SCF uses the underlying trade flows of the commodity as a form of 'collateral' to secure credit and provide working capital for commodity firms in difficult environments.
Speaking at the Global Trader Awards 2010 on Friday night, Trade and Industry Minister Lim Hng Kiang said: 'In the wake of the global financial crisis which saw high volatility in prices and a high level of defaults, Asian-based commodity players are now more concerned about managing price and counter-party risks.'
Mr Lim said that SCF tools such as pre-financing, warehouse and project financing can reduce supply-chain risks. He noted the increased commodity trade flows into Asia and observed that 'Singapore is well positioned to transit from being a regional hub to a global commodities trading hub'.
Efforts will be focused on developing a strong cluster of trade-supporting services, including trade financing, risk management, price discovery and related ancillary services. 'We would like to see a vibrant commodities derivatives sector evolve to enable price discovery and risk management,' added Mr Lim.
