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1 dubai International trading Concentration

trading Knowledge, Going Globalthe International trading Institute (ItI) is a tripartite collaboration between Singapore Management University (SMU), International Enterprise Singapore (IE Singapore) and leading industry partners. the Institute boasts a specialist focus on international trading and is supported by a unique public-private partnership. ItI aims to establish itself as the premier industry platform for thought leadership in the arena of international trading. ItI focuses on delivering training and education at executive and undergraduate levels, conducting high quality applied research with an Asian flavour, and providing consultancy services for firms in Singapore and the region. Through SMU, ITI offers the International Trading Concentration (ItC) which prepares undergraduates for a career in the international trading and related industries. Visit our website at www.iti.smu.edu.sg

a premier university in asia, the Singapore Management University (SMU) is internationally recognised for its world class research and distinguished teaching. Established in 2000, SMU’s mission is to generate leading edge research with global impact and produce broad-based, creative and entrepreneurial leaders for the knowledge-based economy. It is known as a pioneer for its interactive and technologically-enabled pedagogy of seminar-style teaching in small class sizes which remains its unique hallmark. Home to 7,000 students, SMU comprises six schools: the School of accountancy, the lee Kong Chian School of Business, the School of Economics, the School of Information Systems, the School of law and the School of Social Sciences, offering a wide range of bachelor’s, master’s and Phd degree programmes in business and other disciplines. With an emphasis on generating rigorous, high impact cross-disciplinary research that addresses asian issues of global relevance, SMU faculty collaborates with leading foreign researchers as well as partners in the business community and public sector through its research institutes and centres. through executive education, the university provides public and customised training for working professionals in meeting the needs of the economy. Close relationships with leading universities, including the Wharton School, Carnegie Mellon, the University of Pennsylvania and the University of Chicago’s Booth School of Business, allow SMU to draw on their academic and research strengths in various collaborations. the SMU city campus is a state-of-the art facility located in the heart of downtown Singapore, fostering strategic linkages with the business and wider community. To find out more, visit www.smu.edu.sg

singapore Management university

dubai International trading Concentration 2

With the objective of grooming young international trading talent in Singapore, SMU launched the International trading Concentration (ItC) in July 2006. ItC is offered as a specialisation under the Finance major. to complement the classroom learning, students will have exciting opportunities to go on Industry Study Missions (ISM) overseas and site visits, attend networking events, ItI guest lectures and other seminars, as well as participate in commodity trading simulations. Past Industry Study Missions (ISM) include visits to China, abu dhabi & Qatar, Vietnam, australia, Indonesia and Malaysia.

ItC students are also strongly encouraged to take up internships with organisations in commodity trading and related industries, such as commodity trading firms, banks and brokerages. This offers ITC students the opportunity to explore these industries as attractive career options, while organisations achieve a better fit between individuals and their talent needs.

ItC Curriculum(a) Financial Institution, Instruments & Markets (FNCE 102)(b) Corporate reporting & Financial analysis (aCCt 201)(c) trade Finance (FNCE 310)(d) Enterprise risk Management (FNCE 309)(e) analysis of derivatives Securities (FNCE 305)(f) Shipping Business (trad 201)(g) law of International trade (lgSt 223)

Non-credit courses(a) oil trading(b) agri-commodity trading(c) Emissions trading(d) Petrochemicals trading(e) Coal trading

ItC students are required to complete at least 3 non-credit courses to graduate with an ItC specialisation.

Local talent, Global Impact

3 Foreword

Assoc Prof Annie KohAcademic DirectorInternational trading Institute@SMUSingapore Management University

Vice PresidentOffice of Business Development and External relations

Foreworddubai has witnessed a revolutionary transformation to its economy over the last few decades. through the tireless efforts of its government, dubai has successfully evolved from an oil dependent economy to one with diversified interests in trade, services and finance. Today, the city is home to not only the tallest hotels in the world such as the Burj-al arab and the JW Marriot Marquis, but also boasts of many international financial institutions and businesses with presence in dubai.

However, In 2009, dubai required a $10bn bailout from abu dhabi to help service its debts and developments on “the World”, a planned high end property project consisting of an artificial archipelago of islands, have come to a virtual standstill since the financial crisis of 2008.

given the contrasting views of dubai and the importance of the country in oil trading, the SMU students on the International trading Concentration (ItC) embarked on an Industry Study Mission (ISM) to the emirates with the aim of developing a deeper understanding of the opportunities and challenges faced by businesses there. during this learning journey, many misconceptions were dispelled and the students learned important lessons on how companies not only survived, but have build resilience to thrive in dubai’s complex and challenging environment. We are grateful for the warm hospitality extended to us by our gracious hosts during the ISM to dubai. these include organisations such Vitol, ABN AMRO, IE Singapore, VTTI Fujairah Refinery, Jebel Ali Port, dubai Mercantile Exchange, Emirates Iron and Steel, Standard Chartered Bank, the dubai Islamic Bank and the dubai Multi Commodities Centre. In particular, we would like to acknowledge the support provided by the Emirates National oil Company (ENoC) who granted our students access to their facilities and provided them with additional financial support to make the trip possible as part of ENoC’s anniversary celebrations. the support provided by all our industry partners was most valuable in ensuring the success of the ISM to Dubai. Your confidence and commitment to our mission had made this a most memorable trip for our ItC students in 2012. a big thank you from all of us at ItI@SMU.

4Dubai International Trading Concentration

dubai is a city in the united Arab emirates and is located south east of the Persian Gulf on the Arabian Peninsula.

From 10 december 2012 to 18 december 2012, student delegates from the International trading Concentration visited dubai and abu dhabi in the United arab Emirates as part of an experiential learning outreach program. during the trip, the students had the opportunity to learn from a range of players in the commodities industry.

Prior to leaving Singapore, dr. Edmund Chia from the Ministry of Foreign affairs briefed the students on the socio-political climate of the Middle East region. This served as a primer that gave the delegates an overview of his torical conflicts in the Middle East as well as of the recent arab Spring.

Introduction

5 Introduction

6Dubai International Trading Concentration

7 aBN aMro & IE Singapore

ABn AMro & Ie singaporethe delegation arrived in the early hours of the morning at dubai International airport. after a quick rest at the hotel, the delegates met with Mr. rob Broedelet and Mr. Phiroze Mogrelia of aBN amro Bank. Mr. Broedelet gave an overview of the Middle East region and how the recent events of the arab Spring have impacted the nations of the gulf Cooperation Council. Mr. Phiroze gave an in-depth account of aBN amro’s Energy, Commodities and transportation (ECt) division, where it aims to be one of the top five lenders in commodity-trade financing globally. The student delegates had many questions as trade finance is inextricably linked to the physical trade of commodities and both Mr. Broedelet and Mr. Phiroze entertained the students’ numerous queries with zest.

oil shi’a-sunni relations sovereign wealth Funds Financial Institutions

the countries of the Middle East can be divided into oil-producing and non-oil-producing. the oil-producing countries are generally doing much better because of their oil income. these countries are also in a race to solidify future income through diversification and expansion of current output.

Sunni and Shi’a Islam are the two major denominations of Islam. tensions between the two communities often form an undertone in Middle Eastern politics.

the sizes of the gCC countries’ sovereign wealth funds are often staggering. the Saudi arabian Monetary agency, for example, is estimated to have USd 439 billion under management. the students gained insights as to how banks in the Middle East assessed the attractiveness of a country as an avenue for investments.

a large number of banks are active in the Middle East, and it is important to know which of these banks are suitable to bank with, e.g. in/from which to deposit and withdraw funds, to interact with in trade finance, etc. The underlying considerations often extend beyond the merely financial.

trade Finance - Another issue the speakers touched on was trade finance. Mr. Phiroze emphasized that expertise is of the utmost importance. anybody can lend, but to do so with an acute understanding of the business is what sets banks like aBN amro apart. Case studies on hedging price risks in the trading of crude oil and palm oil were then presented to illustrate this point.

To understand trade finance, Mr. Phiroze emphasized two important characteristics of commodities – standardization and its wholesale nature. Standardized in the sense that what the supplier provides and what the buyer wants are of predetermined specifications. Wholesale, on the other hand, as the name suggests, refers to bulk trading.

after the morning meeting, the delegates had lunch with Mr. lester lu from IE Singapore. It was an informal lunch meeting during which Mr. lu shared his personal experiences of living and working in dubai. Mr. lu also shared with the students the business culture of the Middle East, IE Singapore’s objectives in dubai are to serve as a connection for companies in both countries as well as to illustrate and help overcome the challenges a company might possibly face when operating in the UaE.

our thoughts Middle east outlook - discussed in great length was, in the words of Mr. Broedelet, “what [aBN amro looks] at as a bank in order to judge the well-being of a country”. apart from the usual factors such as population size, education and such, there are a few important aspects to consider specific to doing business in The Middle East.

8Dubai International Trading Concentration

9 VTTI Fujairah Refinery

Vitol Refinery & VTTI Oil Terminal FujairahOur next visit took us to the Vitol Refinery and VTTI Oil Terminal Fujairah as we hoped to gain a more in-depth understanding of oil markets in this pivotal region of the world.

reasons for setting up thereFujairah is an open port that is strategically located along the gulf of oman, sitting along the entry and exit point of the gulf. this enables vessels to bunker without the need to deviate excessively from their intended routes. Fujairah is one of the few ports in the world that offers free bunker storage. This provides significant cost savings to vessel operators and provides an added incentive to bunker at Fujairah. over the years, Fujairah has transformed into the bunkering hub of the Middle East as the ideal place to stop and refuel.

Introduction to the Refinery AreaVitol, one of the largest charterers of tankers, with over 450 vessels per annum, is one of the most established independent physical traders in the global fuel oil market. With storage facilities across key locations such as the amsterdam-rotterdam-antwerp (ara) Corridor, Singapore and Fujairah, the students were indeed fortunate to have the opportunity to visit Fujairah. The Fujairah Refinery’s major priority fuel is oil production as it sees its main role as a bunkering port. The opening of a new crude oil pipeline which can transport most of abu dhabi’s 2.6 million barrels per day of oil overland to Fujairah has strengthened the port’s strategic position in the global oil market as it allows carriers to bypass the Straits of Hormuz. Vitol’s strategy is to compete through a “low margins, high volumes” approach. Therefore, it believes in acquiring simple refineries such as the one in Fujairah, which also serves as a storage terminal.

10VTTI Fujairah Refinery

Building on its core strength, its location, Fujairah is considered a haven for big, heavy vessels and tankers that can anchor in its calm waters, and has established itself as the world’s second largest bunkering centre after Singapore.

our thoughtsthe site visit gave us the opportunity to actualise concepts and theories learnt within the classroom. From the representatives from VttI Fujairah, we gained an overview of the terminal and storage business. VttI does not own the oil they store. Instead, they own the tanks/pumps, and rent out tank space to customers. VttI is a joint-venture between Vitol and MISC Berhad, and rents substantial space to one of its parent company, Vitol. VttI also leases tanks to others in the oil industry. this shows how dynamic the oil trading sphere is, with competitors not only competing in various levels of the value chain, but also collaborating with each other in other parts of it.

We also had the privilege of touring the control stations that manage the operations of the refineries, to understand more about the technicalities of the oil-refining process, and how parameters like temperature, pressure and catalyst concentration are monitored electronically.

Refining at FujairahVitol’s refinery in Fujairah is relatively simple by today’s standards. The refinery is unable to conduct hydrogenation (reducing the sulphur levels in the crude oil), i.e. The refinery can only refine crude into different distillate products based on the existing sulphur content levels in the crude that is provided to them. For example, if the crude is low sulphur crude, it can only be refined into low sulphur fuel oil.

one way to overcome the inability to conduct hydrogenation is to blend the crude, i.e. blending crude with relatively high levels of sulphur (sour) and crude with relatively low levels of sulphur (sweet) to obtain a crude with the desired level of sulphur. In this way, refined products can be produced to fit the trading requirements of Vitol’s trading teams. The Vitol refinery in Fujairah is able to produce commercial diesel, gasoil-1, gasoil-2, light naphtha, heavy naphtha, bunker fuel and kerosene (which can be further processed to Jet fuel). The typical distillation time is around 3 hours with the largest group of refined products being fuel oil, jet fuel and bunker fuel.

11 Jebel ali Port

Jebel Ali Portthe student delegates had the opportunity to access Jebel ali Port, on the coast of the Persian gulf. Jebel ali Port is the world’s largest man-made harbour, and the biggest and leading container port operator in the Middle East. Managed by state-owned dubai Ports World, the students toured the 2 port terminals, facilitate huge volumes of trade annually. these huge volumes were partly supported by the government’s implementation of the Jebel ali Free Zone, which houses over 7000 companies. Furthermore, future plans for a railway with Etihad rail, connecting the port to the airport would enable Jebel ali Port to become fully multi-modal, increasing its significance substantially.

our thoughtsthe drive-through of the world’s largest man-made harbour was a real eye-opener to the shipping aspect of trade. the students witnessed the different types of vessel used to transport oil in action, and observed the on-port facilities for cargo transportation and storage.

12Vitol

Vitol Dubai Office

Vitol’s Dubai Office at the Dubai International Financial CentreThe Jebel Ali Port visit was followed up by a visit to the Vitol offices at the Dubai International Financial Centre. Steve Brann, director of the Middle East desk, gave the delegates a deeper understanding of Vitol as a company and its operations through an interesting, informal presentation. He stressed the importance of a global network and multiple supply points as a source of competitive advantage. the students were given a brief background of the company’s operations as well as an in-depth look at their Middle Eastern specific functions. The main takeaway from the presentation was that an analysis of an international trading firm cannot be limited to the specific region in which it operates. Everything in its business operations, including its basis of competition, must be assessed in the entirety of its business operations.

our thoughtsVitol in essence is a business with an extremely long term view. the business also requires an understanding of the entire operation from the upstream to the downstream and anything else in between in order to remain profitable and outperform the market.

the company’s main competitive advantage is its ability to anticipate and react, to change faster and more effectively than its competitors. Moreover, its mere 360 active employee shareholders makes the decision making process extremely efficient.

13 Vitol

Competing in the Middle EastWhen asked about Vitol’s ability to compete in the Middle East, the presenter highlighted a few major aspects which trading firms emphasise:

Global networks/market reachInternational trading companies can supply customers with product from multiple supply points, as they are able to anticipate and cover any product shortfalls more cost-effectively and offer more stable supplies. thus, the wider the reach, the better the flexibility in meeting demand, the higher the trading margins. Ways of entering new regions might range from setting up trading offices to establishing E&P operations.

strategic storage facilitiesthe ability to store supplies, and sometimes to also mix and match supplies from multiple sources, also allows for greater supply chain stability. This translates into flexibility in hydrocarbon feedstock, intermediates and final products, greatly boosting trading margins.

Market intelligenceFor an international trading firm, correctly analysing demand trends and planning supply accordingly is the key to trading success. Whenever Vitol analyses an international trading firm, it does not limit its scope to a specific region in which it operates. Everything, including its basis of competition, must be assessed across the entirety of its business operations.

14dubai Mercantile Exchange

dubai Mercantile exchange

Visit to the dMeThe students were greeted at the Dubai Mercantile Exchange by Mr. Owais Johnson, Chief Products & Services Officer, and Mr. rami abu-rmaileh from Strategy and Business development.

they were given an overview of the energy market in the Middle East as well as the efforts of the dME to create a market for the oman Crude Futures Contract as a benchmark to rival the Brent and WtI futures contracts.

About dMeThe DME is an international energy futures and commodities exchange in the Middle East, that provides a financially secure, well-regulated and transparent trading environment. the dME Exchange has been successful in creating and trading the dME oman Crude oil Futures Contract, addressing the growing need for price discovery of sour crude oil destined for east of Suez markets. the dME is a fully electronic exchange, and its contracts are listed on CME globex. It has also been named the “Exchange of the Year” for australasia and Middle East & africa by leading industry publication FoW.

DME Oman Crude Oil Futures ContractWith production in dubai slowing down, the dubai Contract, also known as the “Brent of the East” has become illiquid, creating the need for a new Middle Eastern benchmark. the dME oman Futures Contract is this new benchmark for oman and Dubai crude oil Official Selling Prices (OSPs) - historically established markers for Middle Eastern crude oil exports to Asia. the contract size of the dME oman Crude Futures Contract is 1,000 barrels. an important factor to note is that the mode of settlement is physical. the main reason for this is to make the contract a better tool for assessing price discovery as compared to cash settlement contracts.

although the oman futures contract’s trading volume remains small compared with Brent US crude contract, the growth in transactions is accelerating. daily volumes jumped several times above the key level of 10,000 lots in May 2012.

15 Dubai International Trading Concentration

16Emirates Iron and Steel

emirates Iron and steelEmirates Steel is a subsidiary of Abu Dhabi Basic Industries Corporation, wholly owned by General Holding Corporation

The students made their way to the offices of Emirates Steel, located in the Industrial City of Abu Dhabi, 35 kilome tres away from the heart of the city of abu dhabi, for a day visit to understand the process of steel making. the morning started with a presentation by Mr. Sami Encol on the process of steel making right from procurement of iron to storage of the end products. Emirates Steel is the only integrated steel making plant in the UaE producing steel billets, heavy sections and wire rods.

The underlying business goal of Emirates Steel is to be an efficient and competitive producer of finished steel products. With the company making significant investments to improve the efficiencies of processing and manufacturing steel, this has enabled Emirates Steel to maintain its position at the forefront of the industrial sector in the UaE.

the presentation was followed by a visit to Phase 1 of the steel making plant to view the processes in action. the student delegation moved in 3 groups, observing the electric furnace till the formation of steel billets and storage. the students then moved to Phase 2, to see the formation of H and I Beams as well as rebars and wire rods. after an in-depth tour of the facilities, the delegation proceeded for lunch and a presenta tion by Mr. ahmed M. Farid abbas. Modeled on Japan’s successful steel industry, Emirates Iron and Steel has many accolades to its name, and has reached its design capacity in a period of only 28 months compared to an industry average of 4-5 years. Mr. abbas also discussed the challenges in procurement of raw materials due to the shallow waters in the Persian gulf, and the steps the company has taken to overcome them.

steel making processthe iron ore pellets undergo a direct reduction process, which produces a solid, metallic iron from iron ore. after this, the metallic iron is melted in an electric arc furnace to produce molten steel. the furnace comprises three electrodes, which will be inserted into the furnace interior and melt the steel in 45 minutes.

the molten steel then enters the ladle. there are different grades of steel that can be produced based on the various amount of elements added. an inert gas such as nitrogen is used to mix the elements. Furthermore, the ladle acts as an intermediary or a buffer zone to hold the molten steel before casting it. During continuous casting, the molten steel is first moulded into a billet. the billet then passes through a rolling mill. rolling involves passing the billet through successive rolls (approximately 16 of them) one after another. Every roll reduces the size of the billet and finally, produces the final product, re-bars or wire rod.

source: “Determining semi-finished products to be stocked when changing the MtS-Mto policy: Case of a steel mill” by annastiina Kerkkänen

17 Emirates Iron and Steel

Post lunch presentationthe post lunch presentation focused on key learning points such as achieving design capacity and the logistical challenges faced by ESI. Mr. Ahmed M. Farid Abbas, also discussed at length the influence of Japanese steelmaking processes on the plant.

Learning from JapanMr. Abbas mentioned some key attributes of the ESI process which have been influenced by the successful Japanese steel industry.

1. transfer of skill and knowledge – The Japanese sent local talent to understand and learn from American manufacturers to develop new techniques.

2. technical developments to overcome shortfall – Japan’s primary disadvantage, its lack of raw materials, was overcome through the building of huge vessels designed to carry large amounts of ore at low cost, building deep harbours and steel mills on the coast, and utilizing the most advanced technology. For example, 86% of Japanese steel is continuously cast - a process that saves energy and raises productivity.

3. Mergers and consolidation of companies – The 1970 merger of Yawata and Fuji Steel into Nippon Steel resulted in the foundation of the largest steel company in the world.

4. expanding steel market beyond local demand – The savings that the steel industry has been able to pass on to other industries - automobiles in particular - has been a major factor in Japan’s successful penetration of foreign markets.

direct reduced iron steel billet Heavy sections

Direct reduced iron is a semi-finished product and is used as an alternative material to scrap steel in electric arc

furnace based steelmaking.

Steel billets are produced as a semi-finished product capable of being

rolled into finished products.

Under heavy sections, the company produces beams, columns, channels,

equal angles, unequal angles and sheet piling.

wire rods reinforcing bar rebar’s in coil

Wire rods are mainly used to form mesh for the reinforcement of concrete slabs and for further

processing to make wires, nails, nuts and bolts.

reinforcing bars have three specifications, namely BS 4449:1997,

BS 4449:2005, aStM a615, with grades of 460B, B500B and grade 60 respectively. All three specifications range from 8 mm to 32 mm in size.

as for the reinforcing bars in coil,they have two specifications, BS

4449:1997 and BS 4449:2005,with grades 460B and B500B

respectively. these range from8mm to 16mm in size.

natural gas in steel productionESI benefits from an abundant availability of natural gas locally in UAE and uses a ratio of 26 giga calories of natural gas per ton of steel produced. Natural gas is used to obtain methane after undergoing gas reforming. the methane is further processed to produce carbon monoxide and hydrogen to produce iron.

the use of natural gas cuts the amount of coking coal used in certain stages of production by 10%. Experts believe that this technique not only allows steelmakers to cut costs and lower selling prices at home, but also gives them a chance to compete with Japanese, South Korean and European rivals for a slice of the export pie. Factoring in costs such as labour, energy and transportation, the overall savings would be $6 to $7 per tonnes of steel.

According to Nucor officials, the Direct reduced iron (DRI) from natural gas offers a carbon footprint that is one-third of that for the coke oven/blast furnace at less than half the capital cost.

details of productsMr. Sami Encol, one of the training managers of Emirates Iron and Steel (ESI), elaborated on the different types of product that ESI produces. these include direct reduced iron, steel billets, heavy sections, wire rods, reinforcing bars and rebars in coil.

18Emirates Iron and Steel

the steel sector has been struggling with steep rises in raw material costs such as coking coal, iron ore and scrap metal, resulting in squeezed margins. For example, coke prices have gone up sharply in the last five years as demand from Asian steelmakers has increased with the China-driven infrastructure building boom. Use of natural gas increases potential savings as the capital cost to increase our ability to inject greater quantities of natural gas into our blast furnaces is minimal, but with a production capacity up to 20Mt per year, it can create a distinct competitive cost advantage for certain companies.

Challenge of shallow waters in the Persian Gulfthe Persian gulf has very shallow waters with maximum depth up to only 90 meters and an in-depth average of 50 meters. this has created problems for ESI as large iron ore carrying ships are not able to berth and unload the raw materials. as a result, ESI has a marginal disadvantage in diseconomies of scale due to geographical limitations.

to overcome this, ESI has barges to transship the iron pellets from sea at 75 kilometers from shore. However, this also generates an extra production cost of USd$5/Mt. the need to contract shipping logistics support to transship the iron ore from sea creates additional risk for ESI. to mitigate this risk, ESI has secured a long term contact with Eships oldendorff of abu dhabi, a shipping logistics company that shares the same parent companies as ESI. Eships’ fleet meets the carriers 75 kilometers offshore where ships equipped with 3 cranes transfer buckets of iron ore pellets from large carriers on to shallow draft barges which pull right up to the steel complex.

19 dubai Islamic Bank

dubai Islamic Bankthe morning session with Mr. Shahid anwar, Senior VP of Corporate Banking kicked off with a brief expla nation of the role of Sharia law in Islamic Banking. the students learnt about some of the fundamental principles of Islamic banking, such as how money is a means to an end and should not be used to gen erate more money. this key principle means that Islamic banking prohibits charging an interest and hence relies on other methods to generate profits. Mr. Shahid Anwar also gave interesting insights into the differences between Islamic banking and conven tional “western” banking. For example, with letters of credit, Islamic banks are almost always the applicant because the bank takes ownership of the goods. this is in stark contrast with conventional banking where the applicant and owner of goods is the importer. lastly, Mr. Shahid anwar touched on various chal lenges that Islamic banks will face in the future, such as having to developing hedging instruments that are compliant with Sharia law. our thoughtsthe visit to the dubai Islamic Bank was interesting and engaging, as it gave the students exposure to a unique form of banking, set in contrast to our regularly held beliefs of the industry.

the following table depicts the contrasting principles of conventional economics and Islamic economics.

western philosophy Islamic philosophy

Factors of production are land, labor, capital and entrepreneurship

Factors of production are land, labor, capital and entrepreneurship

Money is an asset Money is merely a medium of exchange and a measure of wealth

Equitable distribution of wealth Equitable distribution of wealth

opportunity cost is factored opportunity cost is not costed

risk is factor risk is recognized but not costed

20dubai Islamic Bank

some products and how they differ from those offered by conventional banks

type of product Product name Characteristics

profit sharing products musharakah • a joint venture • partners contribute funds and have the right to

participate in the management of business • profits are shared in agreed ratio• losses are shared in the ratio of capital invested

mudarabah • asset based/liability bases/profit sharing• one party provides 100% capital, the other manages• the project

advance purchase financial products

ijarah • asset leasing(operating lease/finance lease)• bank buys and leases out the asset for a rental fee which

includes the capital cost of equipment plus a profit margin

mudarabah(for commodities, like an lc)

• goods are bought by the bank and resold to its clients at a higher price

• margin of profit is disclosed in the sale price• client pays for goods in deferred payments over a stated

period of time

deposit products mudarabah (for deposit)

• deposit products that are based on revenue sharing between depositor and bank

bonds sukuk • asset backed bonds• sukuk holders have an ownership proportionate to the

amount invested in the asset• entitled to revenue generated by the sukuk• sukuk is first sold to an investor, who rents it back to the

issuer at a predetermined rental fee.• there is a contractual promise to buy back this sukuk at a

future date at par value.

21 Standard Chartered Bank

Standard Chartered Bank

Following the session with dubai Islamic Bank, Mr. ravi thota from Standard Chartered Bank took the stage and gave a presentation of Standard Chartered Bank’s regional strategy for the Middle East. Standard Chartered Bank is heavily involved in the major trade flows in the region, which are oil, natural gas and aluminium. An interesting insight raised by Mr. Ravi was that even though there is no bauxite (aluminium ore) to be found in the Middle East (except Saudi arabia), aluminium smelters in the UaE have a competitive edge by having a low cost of power.

our thoughtsIn the presentation, we learnt about the trade flows in the MENA countries and where Standard Chartered fits into this business to provide value-added services. Next, we learned about the role of Standard Chartered in dubai. dubai is considered as the regional hub for Standard Chartered due to its zero tax rate tax regime. thanks to its status as a logistics hub with superior infrastructure, as well as its status as a financial hub, Dubai has a well-developed banking system and the establishment of the dIFC has helped to enhance the attractiveness of dubai.

We also learnt more about the trade flows within the Middle East and its trading partners, where the UAE imports gas from Yemen to be exported to Japan, the world’s largest consumer of gas. We also learnt about the trade surplus with China, and how MENa is the only region in the world who has a trade surplus with the PrC. the Middle East’s main exports include crude, petrochemicals, and aluminium, even though the UaE does not have any bauxite reserves.

lastly, we discussed some of the challenges that Standard Chartered might face with its Middle Eastern operations. Firstly, since its equity markets are less developed, there is a larger reliance on banking. Secondly, legislation is very crucial. one of the challenges highlighted by Mr. ravi was the lack of international banks or regional banks in the region. regionally, only three banks span the Middle East, namely, arab Bank, Samba Bank and Mashreq Bank. the majority of market share in many Middle East countries is dominated by large state owned local banks like Emirate NBD (UAE) – and National Commercial Bank (Saudi arabia).

the fragmented regional banking industry poses a potential problem as StB has to understand the strengths and weaknesses of different local banks and maintain good working relationships with them in order to successfully operate locally.

22Emirates National oil Company (ENoC)

Emirates National Oil Company (ENOC)ENoC was established in 1993 as a wholly owned company of the government of dubai. Its shareholder is the Investment Corporation of dubai (ICd). the ENoC board is chaired by H.H. Sheikh Hamdan bin rashid al Maktoum, deputy ruler of dubai and Minister of Finance and Industry of the United arab Emirates. ENoC is actively involved in the oil and gas sector to support the economic development of Dubai and the rest of the United Arab Emirates (UAE). It is a well-diversified group, which comprises more than 30 subsidiaries and joint ventures with a multicultural workforce of over 7000 employees. ENoC’s total company assets approximate USd 9.5 billion and its turnover is around USd 13 billion.

the students were greeted by Mr. Sanjiv Kapoor who gave the students an overview of the company’s operations within the UAE and all over the world. The main focus of ENOC’s operations is the refining operation, serving the local domestic market in the UAE, specifically Dubai.

operations in the regionIn order to achieve its focus on excellence, the various business segments of ENoC are organized in such a way as to best fulfil local demand and conditions.

ENoC effectively directly deals with the whole petroleum supply chain, with the exception of gas processing, which is handled by a separate arm, dUgaS. domestically, since gasoline is subsidized, and given ENoC’s focus on serving domestic demand, it is hardly surprising that the Supply, Trading and Processing business segment, of which Refining operations forms part, accounts for 70% of the group’s total revenue. In addition, condensates make up the bulk of the crude refined, so as to further fulfil this demand, since the main products from the processing of condensates are the lighter products.

23 Emirates National oil Company (ENoC)

ENOC insights into the industryIn other countries such as India, the socialist government subsidizes diesel, kerosene and LPG – but not gasoline - to make it affordable to the general population. on the contrary, the government in the UaE subsidizes only gasoline. this is possible because of the oil surplus produced in the UaE, especially from abu dhabi. local consumption is relatively low and the surplus is used to subsidize domestic consumption. dubai, however, does not possess much oil surplus and ENoC has to subsidize gasoline prices from their profits to keep prices in line with the other Emirates.

Market Value: the UaE crude oil production industry is forecasted to experience a deceleration in revenue growth and acceleration in production volumes growth during 2010-2015; this comes after a decline in revenue of 42.4% during 2009.

the Emirati crude oil production industry grew by 40.2% in 2010 to reach a value of USd 76.7 billion. the compound annual growth rate of the industry in the period 2006–10 was 5.7%. In comparison, the Nigerian and Saudi Arabian industries grew with Cagrs of 2% and 4.3% respectively, over the same period, to reach respective values of USd 64.7 billion and USd 228.8 billion in 2010.

Market Volume: the Emirati crude oil production industry grew by 10.6% in 2010 to reach a volume of 974.2 million barrels. the compound annual growth rate of the industry in the period 2006–10 was 0.3%. The industry’s volume is expected to increase to 1.1 billion barrels by the end of 2015, representing a Cagr of 1.6% for the 2010-2015 period.

Market segmentation: United arab Emirates accounts for 19.9% of the value of the Middle East & africa crude oil production industry. Saudi arabia accounts for a further 59.3% of the Middle East & africa industry.

24dubai Multi Commodities Centre authority

as a last stop, the delegates visited the dubai Multi Commodities Centre (dMCC), which is the authority for the Jumeirah lakes towers Free Zone. the dMCC is the only international commodity centre in the region and sup ports commodity trading with purpose-built infrastruc ture such as vaults and exchange facilities. the delegates were met by Mr. Franco Bosoni, director of Commodity Services for the dMCC and Mr. Simarjeet Baweja, Head of academy for the dubai gold and Commodities Exchange (dgCX). the dgCX competes with other exchanges on the basis of offering low margin and high leverage and has seen soaring trading volumes since its inception in 2005. Established 10 years ago as an initiative of the government, the dubai Multi Commodities Centre (dMCC) aims to promote trade by positioning dubai as a strategic hub of trading. Situated in the Jumeirah lake towers (Jlt) Free Zone, dMCC acts as an administrator for all business activities, which range from providing:

• Financial Services: Hedge funds which include a gold fund, an oil and gas fund and a Commodity Fund

• Property Services such as leasing

• Commodity Services, the majority of which are high in consumer demand or high in production including diamond, gold, Pearl and tea

the reason for the focus on commodity services is due to dubai’s reputation as a leading diamond trading hub, which is also the second largest contributor to their new economy. In addition, gold is the largest traded non-oil commodity in the UaE.

Some of the key benefits of establishing a company within the JLT Free Zone are:• 0% corporate and personal tax rate• 100% business ownership• 100% capital repatriation• Sole shareholders are permissible• Freehold offices for sale or lease• Full range of business activities licensed• one stop shop (including licensing, visa and related government services)• Unique industry clustering and purpose-built infrastructure

dMCC continues to be a part of the organization for Economic Co-operation and development’s (oECd) interim governance group for the implementation of their guidelines. Further steps have been taken to make compliance with these guidelines a mandatory requirement for all Dubai Good Delivery (DGD) accredited refineries through a host of activities, including practical workshops.

Dubai Multi Commodities Centre Authority

25 dubai Multi Commodities Centre authority

Dubai Gold and Commodities Exchangethe students were briefed by Mr. Simarjeet Baweja, Head of academy at dgCX, regarding the various facets of trading on the exchange. Margin and leverage were discussed as two key aspects of a contract that will reduce default risk. Margins are dependent on volatility, and can also be taken as “insurance money” if decided as such by the Exchange. the success of an exchange also depends on the amount of margin that was charged. leverage is then the ratio between the margin and the amount of exposure.

typically gold contracts have the longest tenor, and only gold has the characteristic of physical delivery. dgCX focuses more on Gold due to the benefits of trading in Gold. Such benefits include: Gold can preserve capital and reduce risk, not diminishing long-term return, higher risk adjusted returns while lowering value at risk, and futures are leveraged and therefore effective investment vehicles.

one of largest traded contracts on the exchange is the Indian rupee Futures contract. the main reasons for this are due to the reserve Bank of India’s strict regulations on futures and forex trading within India, thus making companies within India as well as foreign companies reliant on the dgCX as a way to hedge their rupee exposure to exports and imports.

26acknowledgement

Acknowledgementthe International trading Institute@SMU and the student participants from the

International trading Concentration (ItC) would like to thank:

ItI@sMu’s Industry Partners

aBN aMro Bank N.V. | BP Singapore Pte ltd | Concord Energy Pte ltd | Concordia agritrading Pte ltd | Phillips 66 International trading Pte ltd | Emirates National oil Company | InterChem Pte ltd | International Enterprise Singapore | Koch Refining International Pte Ltd | lee Foundation | louis dreyfus Commodities asia | Noble group Pte ltd | olam International ltd | rabobank International Singapore Branch | Shell International Eastern trading Company | Standard Chartered Bank | Starcom resources Pte ltd | Stemcor (SEa) Pte ltd | Swiss Singapore overseas Enterprises

Pte ltd | toepfer International asia Pte ltd | Trafigura Pte Ltd | Vitol asia Pte ltd | Womar logistics Pte ltd

For their generous funding and support contributing to the success of the Industry Study Mission UaE 2012 and

VitolEmirates National Oil Company

ABn AMroIe singapore

VTTI Fujairah RefineryJebel Ali Port

dubai Mercantile exchangeemirates Iron and steel

Standard Chartered Bankdubai Islamic Bank

Dubai Multi Commodities Centre

for their unparalleled hospitality and kindness in hosting us and creating such a unique learning experience.

I n d u s t r y s t u d y M I s s I o n 2 0 1 2

A Publication of

International trading Institute@sMuSIngapore Management University | 81 Victoria Street Singapore 188065

Email: iti@smu.edu.sg | Contact Number: +65 6828 0430