The challenge:
Jubilant Life Sciences N.V. (JSNNV), an overseas subsidiary of JLSL, procures drugs and chemicals from JLSL and supplies them to customers/ off-takers in the European market. The procurement from JLSL happens under an advance payment and supply agreement (the APSA).
The company was looking to renew its financial support for the APSA and had the following criteria that it needed to fulfil:
-
The balance sheet impact for the parent entity needed to be de minimis. Interest cost efficiency had to justify the efforts and expenses of implementing the multi-jurisdictional trade deal.
-
The solution needed to be structured in such a way that the marketing team could continue its activities undisturbed.
The solution:
The company approached Deutsche Bank Singapore to help it find an appropriate solution. Deutsche Bank Singapore disbursed a Pre-Export Advance facility of €25m to JLSNV on the strength of JLSL’s past export track record and the 16-month future export schedule agreed under the APSA. This helped JLSNV lock in its production capacity with JLSL while it also enabled JLSL to effectively use this arrangement to meet its ongoing working capital requirements.
The solution was implemented across India, Belgium and Singapore. The exporter of pharmaceutical products, Jubilant Life Sciences Limited, is located in India. The borrower entity, Jubilant Life Sciences NV, is in Belgium and Deutsche Bank’s, Singapore branch is the funding bank.
In accordance with the company’s criteria, the deal was structured in a way that the debt was reflected only at the subsidiary balance sheet. Standalone financials of the parent (the most important consideration for the group’s debt capacity) were therefore not impacted by the deal.
In terms of cost efficiency, the company raised US dollar funding at Libor benchmarked levels (instead of the higher Indian Rupee funding level) that could be utilised in India, and interest cost is deductible at a higher tax rate in Europe (compared to India).
Furthermore, the product structure binds the overseas subsidiary to comply with monthly repayments and parent on the export performance obligation and thereby keeps the marketing team to plan as per schedule.
Best practice and innovation:
This deal is an example of innovation, sustainable performance, client centricity and partnership and can potentially be replicated with other corporates and segments across geographies. Deutsche Bank structured and controlled the Usance credit period, liaising with lawyers across three jurisdictions, client and insurers. Risk mitigation, which is key to this deal, was achieved through a watertight structure, efficient syndication and trade flow and security mechanisms.
As Arun Sharma explains, “this solution demonstrates the following best practices of our banking partner”:
-
The ability to structure a bespoke solution to meet the specific client need.
-
Smooth multi-jurisdictional coordination to deliver the solution.
-
Timeliness of the delivery within a very tight deadline.
Given the balance sheet constraints and market challenges faced by the group parent at that time, the solution fits the client’s requirement perfectly on several levels. The structure implemented by Deutsche Bank tied in the regulatory export flows between Jubilant India and Jubilant Belgium and thereby enabled extremely cost efficient financing at the subsidiary company level. Additionally, the export schedule laid out in the transaction documents led to effective management of the client’s export targets.
