Select Page

Collateral Management Agreement (Cma)

“It`s a management function. Think of the warehouse manager in the country, who receives $1,000 a month for fertilizers worth literally millions of dollars. I can understand why it is not difficult to offer this guy his monthly salary to close his eyes, to open doors and to let in one or two trucks,” says Zhann Meyer, director of agricultural raw materials at Nedbank CIB. In order for the products to be eligible for the RRC, the guarantee agreement must meet a number of conditions, including that it must be legally effective and enforceable in all relevant legal systems and that the bank financing the transaction must prevail over all other lenders over the products produced,” he explains. Missing or stolen shares, bribes, fraud, defaults or food that rot in silos are some of the risks that lenders and collateral managers face. These products, “guarantees,” can be more or less everything, but in general, metals belong to a wide range of soft raw materials and of course petroleum products. The Collateral Management Agreement (CMA) protects asset financing between a lender and a borrower in which products are used as collaterals used by some collateral managers to monitor actions remotely and immediately report spreads. You are less exposed if the warranty manager you have appointed: a CMA assigns a collateral manager to take care of the maintenance, conservation and control of the inventory until the goods are exported and the borrower has repaid his debts. From the borrower`s point of view, a CMA allows the borrower to use his shares as collateral and to provide financing or working capital to manage their operations before receiving payment of their assets. Technological advances are also helping to improve the way collateral handles raw materials in warehouses. “Banks can normally access these “constructive” assets if they have a collateral manager who is essentially in control of these stored assets, and that manager only responds to the financial bank,” he says. “CMAs may be misunderstood,” says JJ Gagiano, commercial director of Vallis Commodities, based in the UK, which operates in Africa and the Middle East and provides security management services for banks, businesses and funds. “The CMA is a risk agent, it does not eliminate risk and should be used in conjunction with other mechanisms available to the parties,” he says. “Many collateral managers work at customer sites, so there is a tendency for employee collusion or fraud.

There have been few cases in recent years. It is always a risk to manage millions of dollars of shares of a person who earns a meagre salary in comparison. There are many controls and balances that need to be maintained,” says Dheerie Govender, CEO of Global Collateral Control (GCC). While a CMA has many advantages, industry experts also warn that agreements will not do “good” bad business, and lenders still have to do their homework before entering into a transaction to minimize the risk of fraud, stolen shares or defaults.