hybrid approach to unlocking liquidity in challenging markets

Hybrid Approach to

Unlock ing Liquidity in Challenging Mark et s

Mustafa KILIÇ

Regional Treasury & Goup Insurance Manager

Group Treasury

Indesit Company Internat ional Business S.A. | Sw it zerland

EuroFinance Internat ional Cash & Treasury Management 19th Annual Conference

6-8 October 2010, Geneva Palex po, Geneva, Sw it zerland

Agenda

Challenges facing t reasuries

Reshaping the t reasury

Liquidity solut ions cont inuum

Trapped in cash

Becoming hybrid

The hybrid cash pooling solut ion

Q&A

Long words in short

The new look of cash and t reasury management

is being chastened by risk and shaped by

globalizat ion.

In complex environments, cross-border

movements and abilit y to hold offshore and

FCY accounts are highly regulated.

Local regulat ions often rest rict inter-company

movements or require cent ral bank approval

and report ing.

Treasurers are cont inuously seek ing a bet ter

plat form where to st rategically manage the

ent ire cash management process to increase the

int rinsic value of the business.

It is not feasible to have one approach for all

countries when it comes to cash and t reasury

management due to different jurisdict ions in

each country.

Reshaping the t reasury

Liberalizat ion Harmonizat ion

Cent ralizat ion

Outsourcing

Cont rol Focus

Technology

Liquidity solut ions cont inuum

Cross Border Cash Concent rat ion

Cross Border

Not ional

Pooling

Domest ic

Not ional

Pooling

Domest ic Cash Concent rat ion

Some ent it ies may not be permit ted to

part icipate into cash concentrat ion or not ional

cash pooling agreement .

Cash concentrat ion and not ional cash pooling

give rise to complex legal, regulatory,

account ing and tax considerat ions.

Trapped w ith cash concentrat ion

Trapped w ith not ional cash pooling

Cash Concentrat ion Not ional Cash Pooling

Hybrid approach to cash pooling

Domest ic Cash Pooling

Cross-Border Cash Pooling

“Hybrid cash pooling” is a system that uses two

or more dist inct cash balancing engines to

maintain credit and debit posit ions of various

accounts in the book of the service provider

bank .

Freely convert ible currencies.

Legal ent it ies that must be allowed to open a

local and foreign currency bank account

outside it ’s country .

A financial inst itut ion to provide the service.

Part icipant

Accounts

Header

Account

€10 DR

€40 DR

€10 CR

€40 DR

Becoming hybrid

Overdraft

Header

Account Part icipant

Accounts

€20 CR

€50 CR

€20 DR

€10 DR

ZBA NCP HCP

Part icipant

Accounts

Header

Account

€10 DR

€40 DR

€10 CR

€40 DR

Becoming hybrid

Header

Account Part icipant

Accounts

€20 CR

€40 CR

€10 DR

€10 DR

ZBA NCP HCP Overdraft

Part icipant

Accounts

Header

Account

€10 DR

€40 DR

€10 CR

€40 DR

Hybrid cash pooling

Overdraft

Header

Account Part icipant

Accounts

€20 CR

€40 CR

€10 DR

€10 DR

ZBA NCP HCP Overdraft

Part icipant

Accounts

Header

Account

€10 DR

€60 DR

€10 DR

€40 DR

Hybrid cash pooling

Overdraft

Header

Account Part icipant

Accounts

€20 CR

€40 CR

€10 DR

€10 DR

ZBA NCP HCP €20 CR

Part icipant

Accounts

Header

Account

€60 DR

€110 DR

€10 DR

€40 DR

Hybrid cash pooling

Overdraft

Header

Account Part icipant

Accounts

€20 CR

€40 CR

€10 DR

€10 DR

ZBA NCP HCP €70 CR

Part icipant

Accounts

Header

Account

€10 DR

€60 DR

€10 DR

€40 DR

Hybrid cash pooling

Overdraft

Header

Account Part icipant

Accounts

€30 DR

€40 CR

€10 DR

€60 DR

ZBA NCP HCP €70 CR

Part icipant

Accounts

Header

Account

€10 DR

€60 DR

€10 DR

€40 DR

Hybrid cash pooling

Overdraft

Header

Account Part icipant

Accounts

€30 DR

€10 DR

€10 DR

€10 DR

ZBA NCP HCP €70 CR

Unlock ing the liquidity in hybrid way

What does it tak e to step up?

Structure

•Plan

•Design

•Requirements

Provider Plat form Service

•Part icipants

•Evaluat ions

•Select ions

•Documentat ion

•Implementat ion

•Execut ion

I t t ak es t hree t o f ive mont hs t o bui ld a hybrid engine

6-8 week s

•Test s

•Trainings

•Deployment

3-4 week s 5-7 week s 1-2 week s

Offers a broad spect rum of benefit s

Creates efficient way to consolidate l iquidity w ith

bet ter geographic coverage.

Eliminates local borrowing needs while reducing

corporate guarantees for local credit l ines.

Brings economies of scale in financing condit ions

with incremental income statement improvements.

Enhances cont rol of cash balance and increases it s

visibil it y.

Treasury can overdraw in currency of choice.

Maintain local bank accounts to serve local needs.

Offers a broad spect rum of benefit s

Eliminates inter-company loans while creat ing new

funding vehicle.

Reduces or eliminates FX and swap t ransact ions to

offset the debit posit ions of the accounts.

Reduces number of operat ional t ransact ions and it s

cost .

No physical movements of funds across ent it ies or

accounts at header account level.

No change in ownership of cash.

No addit ional hardware/software on user side.

Things needed to be considered

Hybrid cash pooling prohibited or may be subject

to recharacterized in some countries.

Some ent it ies may not be allowed to part icipate

into hybrid cash pooling agreement .

Occasionally requires physical movement of funds

across accounts.

May require the parent company guarantee.

Investment st rategy for ex cess l iquidity.

Tax and legal opinion.

Short term funding in the currency of choice

without the t radit ional reliance of inter-

company loan st ructures.

Cash in excess of work ing capital at local level

no longer remain “ t rapped” or subject to local

investment vehicles.

Hybrid solut ions have been specifically built

to meet the needs of challenging market s

while boost ing their business and economic

values for robust future.

Long words in short

mustafakilic@mecom