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Hedging of Client’s risks

The companies of all types subject to risk of damages owing to the currency movement, interest rates and contract default of contractors. Adverse movements of the courses, rates, and existence of the credit risks can represent a huge threat to profitability owing to the globalization of the world economy. Nowadays, operations on insurance (hedging) of currency, percent, and credit risks as a cure to the given problems are very popular all over the world.

Hedging (eng. hedge — insurance, guarantee) is insurance of risks of change of prices, rates and so on by means of closing deals in terminal markets. ‘Astana – Finance’ JSC offers the services on hedging of currency, percent and credit risks. We are ready to advise the clients in all the stages of elaboration of the strategy, preparation and conduction of hedging.

Why ‘Astana – Finance’ JSC?

Since 2007 ‘Astana – Finance’ JSC implements the operations with derivative financial instruments with a help of which we are ready to help our clients assure the market and credit risks. The management of derivative goods is busy with elaboration and implementation of the strategies of hedging of clients’ risks.

What are Derivative Financial instruments?

Derivative Financial instrument is an instrument, the cost of which depends on the cost, quantity and duration of the cost of a product, oil, gold or a security, currency rate, interest rates, other financial instruments, or any other variable that would be an underlying asset. Purchase/sale of the derivative financial instruments is carried out by means of conclusion of agreement between the Parties on supply, commitment or exchange of an underlying asset defined in a contract.

Look at a more detailed information here in the presentation.

Percent derivatives are the derivatives where an underlying asset is an interest rate. Such contract gives the rights (obligations) to get (pay off) an amount of money on the stated interest rate. By that percent derivatives are hedging a percent risk and they give an opportunity to control cash flows. The most popular percent derivative instruments are a percent cap/flor, percent swap, forward rate agreement (FRA).

Currency derivatives are the derivatives, an underlying asset of which is a course of exchange. They give the rights (obligations) to get (pay off) an amount of money on the stated course of exchange. Currency derivatives totally exclude uncertainty concerning for example how many the amounts of future payments and intakes in a national currency will be. The most popular currency derivative instruments are monetary swap, forward/option.

Credit derivatives. A relatively new direction in the sphere of derivatives. Application of credit instruments decreases a credit risk of a contractor/client.

Credit risk is a damage possibility owing to the contract default. For a creditor the consequences of the contract default are measured with a loss of the capital amount of indebtedness and unpaid percents less the amount of recovers. A more bright manifestation of a credit risk is the default on obligations, inability to pay, rejection/moratorium, restructuring of indebtedness.

Credit derivatives give an opportunity to:

· Transfer a credit risk on other market participants

· It’s a funding resource

· Diversify a portfolio risk

· Manage and decrease regulatory demands to the capital

· Decrease and absolve the credit limits of individual contractors/clients

A more prevailing instrument is a credit note on the strength of its funding. Our team is ready to offer the more difficult instruments on the credit derivatives.

Main derivative products offered by ‘Astana-Finance’ JSC

· Forward	Is being concluded in a form of a contract binding to purchase or sell of currency in a certain period of time on the course considered in advance
· Swap (currency, goods, percent)	Is being concluded in a form of a contract, implicating the exchange of flows of payments, for example, on the obligation in one currency with a floating rate on the flows of payments on the obligation in the other currency with a fixed interest rate
· Option	Is being concluded in a form of a contract, giving the right to purchase or sell an underlying asset in a certain period of time for the price considered in advance
· Percent cap	Is being concluded in a form of a contract, pursuant to which an interest rate can not exceed the given level during a certain period of time (basically, it is used with a credit with a floating rate). If the owner of option wishes to realize their right the cap seller compensates them en exceeding of the fixed level of an interest rate. The cap deal lets the buyer guarantee a maximum rate of refinancing for a certain period of time in exchange for the award (primary fixed payment) that is being paid off on the date of the deal conclusion.
· Credit note	Combination of an ordinary note (percent security) with any term bound with a credit risk. A goal of a deal for the credit note holder is gaining a higher profitability at the expense of undertaking a credit risk on the considered underlying asset.
· Combinations of the derivative instruments

Use of strategies of hedging elaborated by our specialists will help our Clients to:

Decrease the price, currency, percent risks concerning the purchasing/supply of the raw material and goods, securities, currencies
Decrease the credit risk of a contractor/client
Dispose uncertainty in gaining the future profits and payments and stabilize the cash flows
Lower the cost of the attracted credit resources and increase the liquidity

Basic conditions for cooperation

You can find the basic required information here, where there are the basic instruments and the requirements to them. (5 files in the Excel format are attached).

Our contacts

‘Astana-Finance’ JSC АО

Management of the derivative products

Department of hedging of risks and structured operations

Email: y_tumabekov@af.k, r_utepov@af.kz,

Tel: +7 (7172) 58-08-91

Fax: +7 (7172) 59-10-51

updated 11.12.2008