Liquifying Trade

1
Liquifying Trade

• BAFT
• 14th Annual Conference on International Trade
• Chicago November 2004
• Hernan T. Narea
• ORIX Trade Capital

2
Liquidity Dampeners

• Country and Commercial Risk
• Deteriorating and/or uncertain
• Financial Industry
• Institutional consolidations
• Strategic business realignments
• Regulatory changes

3
Liquidity Enhancers

• Country and/or Commercial Risk
• Stable or improving
• Financial engineering
• Financial Industry
• New market capital
• Strategic business realignments
• Regulatory changes

4
Liquidity Enhancers

• Country and/or Commercial Risk
• Stable or improving
• Financial engineering
• Financial Industry
• New market capital
• Strategic business realignments
• Regulatory changes

5
New Market Capital

• Tailoring the delivery of trade finance for an
  institutional audience
• Standard approach has been creating one-off
  structured facilities that provide needed
  security, tenor and yield.
• While successful, this is isolated to specific
  transactional opportunities
• ORIX Trade Capital is a portfolio approach

6
Growth of Hedge Funds
Assets under Management US Billions
Source Harcourt estimates, MAR, TASS, various
industry sources
7
Location of Hedge Fund Managers
Source Harcourt estimates, Tass
8
Global Trade Volume

• Trade volumes in emerging markets remain robust
  even in periods of economic upheaval.
• Broad market estimates point to 40-50 of trade
  being financed.

Trade Exports
In US Billions
9/11
Asian Crisis
Mexican Crisis
Source World Bank
9
Global Trade Volume - change

• The growth of Global Trade has outpaced global
  GDP in each of the last three decades.

Global Growth Rates
Source World Bank
10
Comparative Investment Alternatives
Trade finance offers a favorable risk reward
return when compared to other similar
international investment alternatives
Sharpe
Index
Ratio
LTP Trade Finance Index
3.1
JP Morgan Emerging Market
Bond Index Plus (EMBI)
1.3
JP Morgan Global
Government Bond Index
1.3
IFC Investable Emerging
Markets Equity
1.1
FT World Equity Index
0.1
Source LTP Trade Finance June 2004
11
Trade Finance Risk/Return Comparables
Risk/Return Weekly Data Dec 2001 Apr 2004
JPMorgan EMBI
LTP Trade Finance Index
1 Year Libor
Source LTP Trade
12
Trade Finance Risk/Return Comparables
Risk/Return Weekly Data Dec 2001 Apr 2004
JPMorgan EMBI
LTP Trade Finance Index
1 Year Libor
Source LTP Trade
13
Trade Finance Risk/Return Comparables
Risk/Return Weekly Data Dec 2001 Apr 2004
JPMorgan EMBI
LTP Trade Finance Index
1 Year Libor
Source LTP Trade
14
Prospects for the Trade Asset Class from Asset
Management Perspective

• Asset class is a viable additional sector for
  funds seeking emerging market yields
  importantly with less volatility than EMB
• Closer to credit risk aspects of transaction
• Provides opportunity for diversification of
  emerging markets risk holdings
• Market is not screen based but liquid
• More pricing transparency is needed some
  footholds exist more is needed
• More standardization and streamlining physical
  delivery of documentation can be an obstacle for
  smaller fund holders again some footholds exist
  more is needed

15
ORIX Trade Capital Business Model

• Asset management approach for the trade finance
  asset class
• An investment allocation philosophy of buy hold
  appetite coupled with a strong contribution of
  trading operations
• Market based pricing coupled with risk appetite
  slightly in anticipation of broader market trends
• Underlying process engine incorporates best of
  market brand standards

16
ORIX Corp. Proprietary Investor
Bank of New York Custodian
Market Counterparties
ORIX Trade Capital
KPMG External Auditor
Various Firms External Counsel
Trading Portfolio
Investment Portfolio
17
Typical Transaction Parameters
Borrower Bank or Corporate in Latin
America Purpose Finance imports or
exports Tenor Subject to market conditions, up
to five years Pricing Market-based
yields Documentation Standard market terms for
tradeable instruments Risk Mitigation Depending
on each transaction, we will incorporate
structuring components such as security and
public and private sector insurance