RE: Inventory Monetisation is the new Innovation Asset class19 Sep 2022 12:52
Dear members,
this an exceptional reply since the message spotted some points that, after the first IM finally published, definitely need a direct reply by SYME (to be clear, compliant with FCA regulation):
1. May I ask to list the names? Additionally:
a. If you think it’s a common product, you should know that Banks, under transparency regulation, have to post in their website the product (in Italy also with the product schedule and costs)
b. If you think it’s a bespoke transaction that only investment banks/ structured financing banks can made, this is exactly what the auditor don’t’ want to see. The bank is not an inventory trading company and if a bank created a “vehicle” (not a trading company with a business plan like Global Inventory Fund' stock companies shown in the SYME' AR) for a single name transaction, this is a so named "product financing arrangement" (and not Inventory Monetisation)
c. BNP had a business in Ireland that it’s now closed because of several points. I personally know a lot of guys involved in it.
2. Totally wrong. Stock Company purchases 100% of the goods and not only 90% or 85%. Additionally, 15% of deferred price is not fixed but variable, depending on the market conditions (since it's a realy true-buy...). This point was never an issue with ALL the big fours and local advisers
3. This is the problem of the product financing structure of the Banks (point #1). If you understood the business model section of the last AR 2021, SYME launched a Fund with REAL stock companies with a business plan focussed on implementing inventory trading strategies. In regard of the “substance test”, please note:
a. The substance test guidelines suggest to check also the cash flow impact: the IM changes materially the cash position of the client (also increasing the equity and not the debt)
b. The substance test guidelines suggest also to check if the monetiser has the capacity to resell the goods to third party and has a business plan focussed to the inventory trading (and inventory analytics capacity): it’s SYME business model…(not of banks which can't evaluate the goods underlying, it's basically not their job)
Additionally it’s not a REPO (both in the form and in the substance). Product financing arrangements are REPO (since they asked, at the end of the day, to the client to repurchase the goods)
4. You are right: bond/ financing have a loan to value since Banks have a regulatory capital to manage (also limits) and financing (and not monetisation…) BUT it’s a true asset class because it’s actually a real asset investment (non-recourse). All the other structures in the market are basically recourse-transactions. The fact that a bank can fund only % is fine work since a Bank/ Debt or Credit Fund could take the senior or super senior risk tranche of each IM and the rest can be subscribed by other investors with other risk appetite (mezzanine or junior)
Hope it's helpful to understand better SYME business mode
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