A letter of credit (L/C) features in a deal that was recently awarded the 2007 Trade Finance Deal of the Year Award from Euromoney's Trade Finance Magazine.

Dubai Multi Commodities Centre (DMCC) won the award for innovative structured financing solutions in a deal that featured two inventory financing deals secured using the Dubai Commodity Receipt (DCR), DMCC's electronic warehouse receipt system.

Arrangements

National Bank of Fujairah (NBF), a founder member of the DCR system, arranged the financing transactions for Greek contracting company, Athena SA.

The borrower, Athena SA, secured the financing from NBF for the construction of the south breakwater berths at the Fujairah Port in the UAE, for nearly US$35 million.

Components

The major component of this line of credit was the inventory financing limit of around US$20 million secured by the DCRs.

Steel plates were imported by Athena under a L/C issued by NBF and were stored in a field warehouse at the project site.

Innovation

This was the first time the DCR has been used in UAE project financing. Under the terms of the DCR, members storing physical commodity assets in a DMCC-approved warehouse - or who assign control over their goods to an approved collateral manager - can be issued a DCR against the value of that commodity.

The member can then use the warehouse receipt to obtain finance from member banks.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.