Axiata is one of emerging Asia's telco success stories. The Kuala Lumpur-based company has grown impressively in recent years, launching a successful initial public offering of its Indonesian subsidiary Axiata XL this March and posting record revenues of $3.7 billion last year, up 8.8% compared to 2008.
Reza Abdul Rahim, head of group corporate finance, is responsible for Axiata's corporate finance and treasury. He sat down to discuss the company's plans to centralise its treasury and how he and his team of six support the firm's activities in the capital markets.
Please describe how Axiata's group treasury works.
Axiata currently operates a decentralised treasury function where each of its operating companies is responsible for its own dealing and execution of material transactions. However, the responsibility for policy making and key decision making is kept at the holding company level, where a standardised group policy and limits of authority amongst operating companies has been institutionalised. The group policy and limits of authority is an empowerment tool that passively manages the treasury risk.
Currently, each operating company manages its own bank solutions. Due to strong regulatory restrictions in some of the countries which the operating company operates in, netting and cross currency cash pooling feasibility studies are not as compelling as expected. However, we will continue to monitor the development closely for any value adding opportunities.
Not many large companies have decentralised treasuries, do you have any plans to change this?
In late 2009, we undertook a feasibility study of our existing treasury function to determine levers that could be used to trigger a more effective process, identifying value adding benefits that the group could leverage on from having a more 'active' treasury team. The study recommended a dedicated or centralised organisation to effectively manage the treasury operation resulting in greater transparency and process control. Axiata is currently in transition towards this, which will enable us to leverage on the advantages of shared common treasury tools and practices.
What would you say are the strengths and weaknesses of Axiata's treasury?
I would say our dedicated and committed treasury network across the group is definitely a strength, alongside our people who have the right skills to deliver the required results.
As for future areas of improvement, having an active and dedicated or centralised organisation to efficiently manage treasury operation will enable us to optimise treasury risk management, lower the cost of debt and have more effective cash utilisation.
What are the biggest challenges you face in your job? How do you address them?
The group operates in emerging markets, some with low mobile penetration in South and Southeast Asia. Historically these countries have volatile foreign exchange and interest rate markets, mainly driven by internal - political, economic, etc - and external - foreign direct investment, etc - factors. Swings in these markets would impact the group.
We aim to mitigate this risk by having a prudent balance sheet to ensure that it would be able to withstand the inherent risks associated with the respective countries. The group has been successful in reducing its gross debt to EBITDA [earnings before interest, taxes, depreciation and amortisation] ratio from 4.6 times at the end of 2008 to 1.8 times at the end of the first quarter of 2010. The reduction was the result of a combination of improving operating performance and the group's successful M$5.25 billion ($1.6 billion) rights issue in 2009. 2009 also saw the group completing an Rp2.8 trillion ($307 million) rights issue at our Indonesian operations, PT XL Axiata, which further strengthened its balance sheet.
Axiata issued an eight times oversubscribed $300 million 10-year bond this April. How did treasury support the deal?
The aim of the bond issuance was to not only extend the debt maturity profile of the group but also to diversify the group's funding source.
The treasury team was primarily involved in liquidity management for the inflow of funds and matching it with the intended use of proceeds which would necessitate managing the foreign exchange risk of the flow of funds. This would also involve looking into the necessary hedging transactions to enter into.
Looking ahead, do you have any other plans besides centralising Axiata's treasury?
We constantly look at potential value adding activities to ensure that our treasury remains relevant in managing our risk and effective in managing the available cash.
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