Making capital work harder

Treasurers gather in Manila to talk about controlling cash, maintaining liquidity and managing risk.

Chief financial officers and treasurers from some of the Philippine’s best-known companies turned out at FinanceAsia’s second annual Corporate Treasury Summit in Manila last month. The timely and targeted agenda attracted 200 delegates to the Shangri-la in Makati, where they picked up useful tips on making their capital work harder and controlling cash flows.

Aurelio Montinola, the president and chief executive of Bank of the Philippine Islands, the main sponsor of the event, opened the conference with a speech that called on the treasurers and CFOs in the room to not only focus on their day-to-day tasks of managing their treasuries, but to also look at the big picture and to access more funding so that they might embark on new projects that will boost the economy, particularly in the areas of energy and infrastructure. He added that while the outlook for the Philippine corporate sector was positive, the country still had some way to go to live up to its potential.

The first speaker, Jose Teodoro Limcaoco, senior vice-president of BPI Family Bank, picked up on this theme and talked about the growing trend of outsourcing in the finance field. He said hiring a third party to perform some treasury functions saves money and frees up finance executives to focus on helping the company to achieve its strategic goals. He acknowledged that some treasurers were reluctant to hand over sensitive tasks, such as processing payments and reconciling receivables, but, he said, with advances in technology, issues such as security breaches and information leaks were no longer of great significance.

Sherisa Nuesa, CFO of Integrated Micro-electronics, was up next and her presentation focused on managing a business through a crisis. While she referenced the recent financial crisis, she said businesses can face a number of different crises from labour strikes to the loss of a big customer. When a crisis hits, said Nuesa, CEOs often call on their treasurers to suggest financial tactics that might be used to alleviate the problem, and to implement better checks and balances so that the company is protected against future predicaments.

“It really pays to have performance metrics and standards in place to help measure the impact on the company’s finances,” she said.

To finish off the early morning sessions, Sridhar Kanthadai, head of regional treasury trade solutions for Citi, presented a case study on the new wave in payables.

The topic then turned to regulatory issues as Sergio Edeza, a former treasury official, and now treasurer of San Miguel Corporation, spoke about current and proposed banking laws in the Philippines such as rules surrounding derivative transactions and structured products, and the overhaul in accounting standards due to come into force in 2013.

Edeza went on to say that the financial crisis undermined the role of the credit rating agencies and placed the onus on corporate treasurers and CFOs to do their own analysis of counterparties.

Antonio Paner, treasurer and head of global banking at BPI, followed this with a discussion about the effect of the European debt crisis, warning local treasurers that now is the time to focus on preserving capital. This involves more scrutiny of counterparties and the need to monitor cashflows, implement funding limits and take advantage of cash solutions. He also urged delegates to exercise prudence by ensuring that they have a liquidity buffer and by hedging their positions using currency hedges and interest rate swaps.

Perhaps the most entertaining speaker of the day was Glorina Padua-de Castro, treasury and investor relations head at Manila Water. She shared some of the difficulties that Manila Water has encountered when raising finance and choosing a new treasury system. She prefaced her presentation by saying:

“These are things that you might not learn from a bank or a service provider because they are usually trying to sell you a product.”

She warned treasurers in the room from signing loan agreements that contain overly restrictive covenants, and then explained how Manila Water was recently able to restructure some of its loan contracts. She advised against negotiating with a banking syndicate as a single group — mainly because the most vocal bank in the group tends to dominate discussions — and instead suggested sitting down with each bank individually, starting with the friendliest and working up.

Padua-de Castro then called on banks to rein in their lawyers and reduce the amount of paperwork that accompanies a loan agreement. Next she moved on to the topic of choosing a new treasury platform. She said this was a difficult process that was fraught with pitfalls.

“If some software vendor tells you that it will take two months to implement a new system, don’t believe them,” she said, estimating that a more realistic time frame is between three and four months. She said that it pays to hire an independent consultant to help with the task, and that the CFO should drive the implementation, not the IT department.

Lunch was followed by a panel session on new advances in treasury technology. The panel included representatives from Misys, Globe Telecom and G-Xchange, and while many topics were covered during the 45-minute session, the focus was clearly on the rise of mobile or handheld devices as a way of delivering treasury solutions — a hot topic in a country that lacks reliable fixed-line telecoms infrastructure.

The technology theme continued with a presentation by Michael Fullmer, senior vice-president of AvantGard at SunGard. Fullmer said surveys have shown that many companies in Asia are still running their treasuries using simple spreadsheets and that now is the time to move away from this. He said treasurers spend a lot of time looking backward, trying to analyse yesterday’s information, when really the gathering of that old information should be automated, leaving time for the CFO to look forward and focus on tomorrow’s numbers. Efficiencies can be achieved by reducing the number of bank interfaces, reducing the need to rekey data, and delegating to others in the treasury by having clearly set limits and procedures. Lastly he called on CFOs to focus on the receivables side of the ledger. Corporate treasurers should know exactly how much is outstanding at any given time and how long it will usually take to receive the funds. Fullmer said receivables should be viewed as “free money” that is better off in the company’s bank account – “this saves them from having to borrow more money,” he said.

The last two speakers were Connie Leung, head of trade and supply chain markets at Swift, and Mark Bobek, managing director of independent corporate treasury advisory firm PMC Treasury. Leung spoke about the benefits of standardising and centralising cash and trade activities by using a single channel for handling multi-bank business. She outlined the mechanics of Swift’s Trade Services Utility, and gave an example of how TSU was helping some companies in the region to reduce the cost and paperwork involved in trade transactions. Bobek, meanwhile, focused on the hazards of running an inefficient treasury, claiming that corporate treasurers around the region risk losing thousands of dollars each year due to poor cash concentration.


This story was first published in the September 2010 issue of FinanceAsia magazine.

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