financial system software62

DTCC Repo Market Is a Diversification Opportunity

Settlement house’s program could be short-term funding source for corporates.

Technology motherboard 62

Real Time Is Getting Real

The pace of change in banking and technology is faster than ever before, and banks like HSBC and fintechs are teaming up.

iTreasurer logo 2016

Subscribe Now

Today is over. Subscribe to iTreasurer and
get ahead of the problems you will face tomorrow.


Liquidity Management, Funding a Focus at EuroFinance

Share |
October 12, 2017

It's a seller’s market for raising capital, ratings are still useful and good working capital is good strategy.

Fri Currency in Gears SmallIt’s an issuer’s market for investment-grade corporate bonds, agency ratings are useful for many things, working capital is strategic, and European money market reforms are here. Those are just a few of the topics discussed at one meeting stream at EuroFinance’s annual conference.

It was the 26th annual conference for EuroFinance, which hosted this year’s event in Barcelona, Spain. Despite the Catalonian independence referendum that had just taken place, the conference – this year with the tag line The Intelligent Treasury – saw record attendance and an unprecedented number of sessions. As a stream chair on Day 2, I presided over a selection of topics on the funding and liquidity theme.

First out was NeuGroup member Ravi Jacob, treasurer of Intel, on the topic of funding in the corporate bond markets. He highlighted the current “benign” market conditions, which are replete with high equity prices, plentiful liquidity from aggressive banks and investors, along with low interest rates, spreads and volatility levels. In addition, other than change of control clauses – which took on new importance after the Dell acquisition of EMC, a higher-rated target – covenants are loose. In other words, it’s an issuer’s market, at least for investment-grade corporates, and there is plenty of capacity in both the US and European markets.

Nevertheless, whatever the current conditions, Mr. Jacob’s main point was that while now might be a good time for opportunistic issuance decisions, they have to be made in the context of a well-thought-out financing strategy that takes into account (a) a target credit rating for long-term funding flexibility; (b) positioning the balance sheet to support organic growth and strategic acquisitions; (c) cash return to shareholders via dividends and buybacks; and (d) onshore/offshore cash positions and repatriation.

Next, a four-person panel tackled agency credit ratings both from a rated- and unrated-company perspective. François Masquelier, head of treasury and enterprise risk management, RTL Group, and chairman of the Luxembourg Corporate Treasury Association and Edwin Veenman, EMEA & NA treasurer of Yanfeng Global Interior Systems, agreed that ratings help as evidence of creditworthiness and quality for less well-known companies who otherwise might have to provide bank guarantees for purchases. Andrea Talpo, group VP of corporate treasury at Swiss company STMicroelectronics where cash flows are volatile and R&D and capex are high, noted that access to debt capital markets in an effective way was the main driver.

Finally, Sekar Sundaram, treasury director of long-time unrated clinical research company PAREXEL International, observed that even without a rating the company’s financials were such that access to funding at a reasonable price was not a problem – and the process less a burden on management. However, he finished by remarking that the company had recently been acquired and taken private and the plans to lever up the company significantly necessitated a rating now.

When the CEO notices working capital, it’s strategic. That was the gist of a presentation by Jan-Martin Nufer, director or treasury and funding at Austrian chemical company Borealis. Unlike some firms that have a corporate cash council or similar committee, Borealis puts in place a project group when the need arises for quick “guided” action to mobilize working capital. The line organization is heavily involved with guidance from treasury. Depending on the situation, the project may focus on different KPIs and actions, for example:

  • KPI: Lower the DSO. But, do we need to collect sooner if we don’t really need the cash right now, interest rates are negative and banks are unwilling to accept deposits? 
  • KPI: Increase DPO. But, similar to the above situation, do we need to extend our payment terms? Is there an early-payment discount we can take advantage of?

As a result, the KPIs that are most in focus shift, depending on the company’s cash situation and prevailing interest rates, etc. Borealis also has spreadsheet-based “calculators” where the line organization can determine the working-capital effect of different payment terms and whether it’s a temporary or permanent effect.

Finally, Jane Lowe, secretary general of the Institutional Money Market Funds Association in the UK, gave highlights of the new European money market reforms. Similar to the US, there will now be variable net asset value (VNAV) funds in addition to the constant NAV public debt funds (government funds). Unlike the US, there will also be a “low volatility” NAV (LVNAV) option that will be allowed to be CNAV priced. The clock is ticking on this regulation and companies need to talk to their asset managers about how they will achieve the tight “collars” on their funds, and though the regulation has not changed on the definition of cash and cash equivalents, it may still be good to talk to the company’s auditors to ensure everyone is clear on this.


comments powered by Disqus