Credit & Counterparty Risks
Olam carries out an in-depth assessment of the counterparty wherein the counterparty is assigned a rating grade. This is done through a scoring process which takes into account the credit worthiness and financial background, country of origin, their payment and contract performance record with us, and publicly available ratings if available.
We monitor the credit quality of our counterparties continuously and review their ratings annually. We control credit risk by setting counterparty-wise credit limits (value and tenor) based on counterparty assessment and the ratings.
As a policy, no single counterparty accounts for more than 5% of Group sales. We control our counterparty risk (performance risk on forward contracts) by setting counterparty-wise limits (value and tenor) for forward contracts. The counterparty limits take into account the rating of the counterparty, the contract tenor, nature of the market, and price volatility. For weaker counterparties, the tenor is kept short and advance margin deposits are taken to mitigate the counterparty risk.