Best Supply Chain Solution Highly Commended: T7 CSI Integrated Sdn Bhd

Published: Jan 2024
T7 CSI Integrated Sdn Bhd

Ong Fee Peng

Group Chief Financial Officer
T7 CSI Integrated Sdn Bhd

T7 CSI Integrated Sdn Bhd is a wholly owned subsidiary of and 100% owned by T7 Global Berhad. It is an investment holding company with its subsidiaries diversified into three sectors, energy, aerospace and defence, and construction.

in partnership with

UOB logo

Foreign currency invoice financing solution with interest rate swap option

The challenge

The company’s parent company, T7 Global received a contract, valued at US$88m from Mubadala Petroleum, one of the largest oil and gas companies in Abu Dhabi, to build, lease, operate and maintain a mobile offshore production unit (MOPU) at the Gulf of Thailand.

There were some challenges associated with the awarding of the project:

  • Working capital gap – the contract entailed a long tenor, requiring an effective financing solution to bridge the long working capital gap.

  • Financing cost – the company was cognisant that a bulk drawdown from a traditional term loan would result in higher financing costs for them.

An alternative funding method was required.

The solution

To realise this contract, based on the established business relationship and the company’s own rigorous internal assessment, it appointed UOB Malaysia to provide it with the necessary structured trade finance solution.

In consultation, the bank provided T7 with a customised trade solution to finance 80% of the total cost covering the cash flow from the construction period up until the monetisation period of the entire leasing contract post commissioning.

The solution was deployed in two tranches:

First tranche: foreign currency invoice financing – purchase

Second tranche: foreign currency invoice financing – sale

Best practice and innovation

Demonstrating best practices and innovation, T7 has worked with UOB Malaysia to arrive at a carefully crafted trade finance solution that optimises financing costs. T7 only pays for the funds utilised for supplier payments, saving on unnecessary expenses compared to traditional term loans with bulk drawdowns.

In a commendable display of efficiency, the documentation process is also simplified. Recognising the significance of promptly identifying suppliers, the drawdown documentation was streamlined, ensuring a swift turnaround without compromising risk management and mitigation efforts.

The solution demonstrates innovation as it goes beyond conventional trade finance offerings. Considering T7’s unique business requirements, interest rate swap options were introduced. This valuable addition empowers T7 with the right, though not the obligation, to enter an interest rate swap on agreed future dates, all under terms protected by the swap option.

Key benefits

  • Return on investment (ROI).

The solution’s ability to bridge the long tenor working capital gap for the contract showcases its efficacy in handling complex financial challenges. Not only does it provide the necessary funds, but it also does so in a manner that minimises financing costs, demonstrating financial prudence and foresight.

“Furthermore, the solution’s innovative feature of monetising five-years’ worth of lease payments from the awarder under the second tranche is truly remarkable. This approach creatively leverages future income to repay the initial tranche, ensuring enhanced cash flow for our business post-commissioning of the monetisation of the mobile offshore production unit (MOPU).”

Ong Fee Peng, Group Chief Financial Officer

UOB takes a forward-looking approach to our solutions by maximising near- and long-term benefits to meet T7’s working capital needs. With the commission of T7’s Mobile Offshore Production Unit, UOB structured a trade finance solution that helped T7 leverage on future income, through the monetisation of lease payments, from the awarder under the second tranche, to repay the initial tranche. This also aided in the simplification of T7’s complex financial challenge, and ensured sustained growth for enhanced cash flow needs.

in partnership with

UOB logo

The Adam Smith Awards Asia is the industry benchmark for best practice and innovation in corporate treasury. The 2023 awards attracted 450 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia

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