EuroFinance Asia: International Cash, Treasury and Risk for Finance Professionals

The 18th Annual Eurofinance Conference on International Cash, Treasury and Risk for Finance Professionals in Asia kicked off on 9 May with economists Arnab Das from Roubini Global Economics and Savvas Savouri from ToscaFund setting the scene, expounding upon their widely differing views of the global and regional outlook.

Das offered a rather pessimistic view, expecting that the eurozone in its present form will not survive and that the euro will fall significantly. The entire world is slowing down, he said, with a crisis in the eurozone, a fragile US and India falling off a cliff. The impact of European banks pulling inwards is that assets in Asia are being sold to local banks, US banks and capital markets. There will be an impact on trade finance, he said, and India is already starting to feel it.

Savouri, on the other hand, is clearly an optimist. While he agreed that the euro is in trouble, he saw parallels with Japan and forecast a strengthening euro over the next several years. In Asia, he sees the renminbi (RMB) becoming more convertible and China issuing sovereign debt within the next five years or so. Of particular interest to some participants was his expectation that natural resource companies may soon insist on payment in a basket of euros, US dollars and other currencies rather than solely in dollars. He sees no liquidity crisis in London or in Asia, with London “awash in capital” and local banks taking the place of European banks in Asia.

Conference participants then responded to questions, and it turned out that the Asia-based participants are an optimistic lot too. Sixty-seven percent said they are optimistic about their company’s performance over the next 12 months, with just 8% pessimistic and the remaining 25% uncertain. The vast majority see most of their company’s growth coming from China or the rest of Asia. Also reflecting some optimism, 25% are putting spare cash into expansion or merger and acquisition (M&A) and 18% are using it for diversified investments, with 17% building cash buffers and 21% paying down debt.

Looking at whether a slowdown in China will affect the rest of Asia, 40% don’t expect a slowdown at all and 45% expect it will have very little effect. Sixty-one percent, on the other hand, expect some or a considerable impact on their business from the euro crisis. Almost three-quarters (74%) said they don’t face refinancing risks. And while only 18% expect full RMB convertibility within five years and another 49% within 10 years, fully 31% are already receiving invoices in RMB from Chinese suppliers and another 20% expect to begin receiving RMB invoices before long.

In the next plenary session, UPS Eurasia M&A vice president Ernie Caballero, Qatar International Petroleum Marketing Company (Tasweeq) chief financial officer (CFO) Roger Hickman, and Essar (India) group treasurer Partha Bhattacharayya discussed their strategies amid the economic uncertainty.

Bhattacharayya noted that although banks have long done counterparty credit risk assessment, the credit risk of banks themselves has forced his company to develop a credit assessment of the banks, even though there is a cost involved and upgrading skills takes time. He said his key risks are volatility in currencies and commodities. Bhattacharayya said that, going forward, his priorities are strengthening risk management in a volatile foreign exchange (FX) market, protecting the bottomline and broadening the number of funding banks his company uses.

Hickman said Tasweeq, with a volume of US$14bn and with a monopoly on oil products in the country, sees credit as its biggest risk. Cash management is also very important. From a planning perspective he sees bank failures as their immediate exposure, so he is trying to diversify away from some banks, spread risk across banks, and talk to existing banks more often in order to understand their programs to deleverage. Hickman said that over the next 12 months he will focus on diversifying the funding base so the company has access to funds from multiple banks, linking directly to SWIFT, as well as considering sales in RMB, outsourcing trade finance to a bank and underwriting credit risk.

For UPS, which operates the seventh largest airline in the world and is in 220 countries, the crucial considerations are liquidity and transparency. To improve liquidity, it is using ‘pool-able’ funds from most countries and is carefully managing ‘non-pool-able funds’ from countries like China and India, which have restricted currencies. To mitigate risk, all bank accounts are linked to the treasury platform, and the company uses its funds to buy things like companies or planes so funds aren’t simply sitting around. The key, said Caballero, is visibility, access to funds, getting funds into the cash pool and using those funds in high quality investments so they can keep funds out of the banking system as much as possible. Over the next year, Caballero said a priority is to fine-tune operations through non-traditional treasury initiatives such as restructuring legal entities outside the US under a single holding company, which allows UPS to recycle funds and fund growth outside the US. Another key initiative is to rationalise the legal entities globally so cash can’t hide.

Providing an interesting perspective, 52% of participants listening to the discussion said in a real-time poll that the biggest risk they face in the next 12 months is an increase in the price of funding, with 22% saying sovereign failure is a risk and 8% seeing a risk of bank failure. The remainder see access to funding as their biggest risk.

A panel discussion at the end of the day saw Bank of America head of sales, Asia-Pacific Percy Batliwall, Deutsche Bank head of corporate banking Asia-Pacific Oliver Brinkmann and RBS Asia-Pacific head of transaction services origination Manfred Schmoelz participate in a discussion on trends in how corporates can manage their banking relationships. Leveraging their experience and input from a real-time poll of participants, three themes emerged from the discussion. First, corporates want strong relationships with a bank that understands their needs. They’re looking beyond cash management to engage with a bank that can provide value by showing how they can run their business better, change their operating cycles, and how the treasurer can equip their business better.

Corporates are also working to balance their need for strong banking capabilities, including business knowledge and technology, with counterparty risk. And finally, corporates are starting to expand their number of bank relationships, particularly as they expand cross-border. Whereas they cut back to two banks typically before the great financial crisis and may still have a small number locally, corporates are now looking for five to six banking relationships regionally.

Nearly 500 participants benefited from these and other sessions at the conference, which will continue through Friday 11 May.

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