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The State Trading Corporation was created by an Act of Parliament in 1982

State Trading Corporation. The State Trading Corporation was created by an Act of Parliament in 1982. NOT AN OFFICIAL UNCTAD RECORD. State Trading Corporation. OBJECTIVES OF STC. To negotiate the purchase of goods

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The State Trading Corporation was created by an Act of Parliament in 1982

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  1. State Trading Corporation The State Trading Corporation was created by an Act of Parliament in 1982 NOT AN OFFICIAL UNCTAD RECORD

  2. State Trading Corporation OBJECTIVES OF STC • To negotiate the purchase of goods • To engage in the manufacture or processing of goods and to ensure their marketing • To import goods with a view to their marketing, distribution or supply by wholesale or retail • To export goods • To engage in such other activities as may be authorised by the Minister

  3. State Trading Corporation GOVERNANCE OF STC Ministry of Industry, Small & Medium Enterprises, Commerce and Cooperatives Board Sub Committee Management

  4. State Trading Corporation MANAGEMENT STRUCTURE OF STC General Manager Commercial Finance Risk & Projects IT Administrative Human Division Division Division Division Division Resource Division

  5. State Trading Corporation PRODUCTS IMPORTED BY STC

  6. State Trading Corporation PRICE RISK EXPOSURE ON PETROLEUM PRODUCTS

  7. State Trading Corporation MARKET ANALYSIS Before any decision for hedging is taken, a market analysis is carried out. Market Situation(hyperlink)

  8. State Trading Corporation FACTORS AFFECTING THE COMMODITY PRICES • Stock Levels • Global Demand – World Economy • Weather risks • Geopolitical Factors • OPEC reaction • Lack of refining capacity

  9. State Trading Corporation WORLD PRICE VOLATILITY

  10. State Trading Corporation IMPACT OF PRICE INCREASES A USD 1/BBL increase in prices of Petroleum Products costs the national economy an amount of USD 6m.

  11. State Trading Corporation HEDGING OF PETROLEUM PRODUCTS In 2002, the Government decided to hedge Price Risk Exposure.

  12. State Trading Corporation CREATION OF RISK DIVISION The Board of the STC decided to create the Risk Division in 2003.

  13. State Trading Corporation OBJECTIVES OF THE DIVISION • Hedging of Petroleum Products • Hedging of Liquefied Petroleum Gas • Management of Treasury • Procurement of Foreign Exchange • Investment of USD and MUR

  14. State Trading Corporation INTERNATIONAL SECURITIES AND DERIVATIVES ASSOCIATION (ISDA) Before hedging transactions are done with foreign Counterparties, ISDA have to be signed. In September 2003, a U.K. firm of legal advisors were appointed.

  15. State Trading Corporation COUNTERPARTIES The State Trading Corporation has signed ISDA with the following Counterparties:- • Citibank NA • Barclays Bank PLC • Morgan Stanley • Standard Bank PLC • Societe Generale • Mitsui Energy Risk Management LTD

  16. State Trading Corporation COMMODITY PRICE RISK Commodity Price Fluctuations affect Cash Flows and Companies are exposed to various risks. Hedging Commodity Price Risk forms part of any comprehensive Financial risk management process.

  17. State Trading Corporation MANAGING CASH FLOW • REVENUES • COSTS • COMMODITY LINKED FINANCING

  18. State Trading Corporation Revenues Automatic Pricing Mechanism (APM) • Effective since April 2004 • Range: Maximum Increase /Decrease – 20 % Minimum Increase /Decrease – 2.5 % • Price reviewed on a quarterly basis Cost Plus Basis International Trade:- 50% Sales are made at Cost plus Margin

  19. State Trading Corporation Costs Commodity Hedging Techniques:- • Options • Swaps Hedging Fund:- • Cost element included in the Price Structure • Quarterly Cost / USD 300,000

  20. State Trading Corporation COMMODITY LINKED FINANCING No Commodity linked financing from banks or Capital Markets is used.

  21. State Trading Corporation HEDGING TECHNIQUES USED • CALL SPREAD • CALL SPREAD WITH A SELL PUT (3 way Options) • SWAPS

  22. State Trading Corporation Call Spread A Call Spread consists of buying a Call at a level and selling another Call at a higher level. 80 Sell Call USD / BBL69Buy Call

  23. State Trading Corporation Call Spread with a Sell Put(3 Way Option) A second hedging alternative is to use the same Call Spread levels and sell a put at a lower level, say USD 60/bbl. 80 Sell Put USD/BBL 69 Buy Call 60 Sell Put

  24. State Trading Corporation SWAP A Swap consists of exchanging a floating price for a fixed price. USD 69/bblSwap Level

  25. State Trading Corporation HEDGING GAS OIL NOVEMBER 2006

  26. State Trading Corporation HEDGING GAS OILDECEMBER 2006

  27. State Trading Corporation HEDGING GAS OIL JAN, FEB AND MARCH 07

  28. HEDGING PREM. UNLEADEDNOV & DEC 2006

  29. HEDGING PREM. UNLEADEDJAN, FEB AND MAR 2007

  30. State Trading Corporation HEDGING LPGJAN, FEB AND MAR 2007

  31. State Trading Corporation GAIN ON HEDGING TRANSACTIONS

  32. State Trading Corporation THANK YOU

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