As we discover how Russian oil, gas, grain and fertilisers, timber and pulp are the foundations globally for a huge range of industrial sectors, and as we see the effects of sanctions amplified through the financial system, global tax reform and ESG regulations take a back seat. Geopolitical turmoil is here to stay and companies need to re-engineer supply chains, manufacturing hubs and treasury too. Banks are starting to look ahead and plan for the effects of sanctions on China, the possible fallout from aggression towards Taiwan and other potential areas where conflict will force them to offboard clients or withdraw entirely. Non-financial companies need to engage in the same kind of forward scanning. What should you do now to build resilience to the current environment? How should you plan for other worse case scenarios? How are you modelling your China risk, or the risk that key banking partners will pull out of countries in which you do business or even offboard you? How does treasury need to respond to possibly seismic changes to business models? This panel of three corporates describe their approaches.

The challenge is clear: a series of exogenous shocks have upended the global economy; assumptions on rates, inflation, energy and business models look obsolete; and the longer-term trends embed ever more uncertainty – whether the effects of climate change, the consequences of political upheaval or the ramifications of digital currencies and tokenisation, the metaverse and Web3.0. In the short term, treasurers must respond to protect businesses from risk and provide a foundation for growth. So, what are the key priorities and what are the potential pitfalls? Taking decisive action early looks necessary but should risk management today focus only on the immediate future or is there a more strategic approach to be adopted? 

Major central banks in the region have been increasing interest rates for more than a year, but above target inflation may lengthen the cycle of tightening. So predicting when rates may start to ease is difficult. Given the influence of the US economy, understanding the path of US growth and forecasting Federal Reserve actions are still key. Global growth drives the region’s export markets, and here again there is uncertainty around key economies in Europe as well as the US and China. Politics in the region will continue to drive economic instability: governments tend to swing violently from left to right during election cycles with each new regime undoing what came before it, including sensible policies and reforms. This is leading to the election of more extreme, “outsider” candidates. So is there is any likelihood of sustainable long-term economic growth? We hear from [] for their answer to this perennial question.

After a decade of exceptionally low interest rates, most companies have evolved capital structures, borrowing programmes and business models that depend on high levels of cheap-to-service debt. The monetary response to COVID prolonged the cycle to such an extent that despite the pandemic, in late 2021, US corporate bankruptcies had fallen to historic lows. Companies avoided the need to restructure and could stay afloat by borrowing more. Rising inflation and tightening monetary policy will make that strategy more difficult as input costs rise and debt service bills spike. ESG-related capex and a need for higher inventory levels may also put pressure on working capital and credit facilities. Treasurers need to maintain access to bank and capital markets funding. They need to keep ratings agencies onside. And they need to suggest a range of balance sheet options mapped to different economic and business scenarios.

American companies are still sitting on near record piles of cash according to a June 2022 analysis of Fed statistics. About half that amount is held as cash and checkable deposits – an all-time high in terms of percentage of US corporate cash. Despite in-depth research that has shown that the key driver for these cash piles is tax, the shift to the most liquid forms of cash suggest other factors are at play. Treasurers are understandably wary of economic volatility, interest rates, inflation and access to capital markets especially given the unpredictable risks that will surface as quantitative tightening replaces a decade of ultra-easy money. So, what worries treasurers most? Have the old problems of cash visibility and forecasting been replaced by more fundamental concerns around counterparty risk and access to working capital? And can new technologies help with advanced scenario modelling and liquidity management? This discussion will touch on all aspects of cash strategies. 

Treasurers at high-growth companies often struggle to cope with the increases in transaction volumes, currencies, and new locations that come with business success. This company’s cash grew from $88 million to $2.2 billion within four years, prompting a search for solutions that would not only automate and replace existing manual processes but also provide powerful analytics tools that enabled data-backed decisions. Implementing a traditional TMS would have been time-consuming and would have required a lot of support from internal IT resources, potentially delaying the journey. Thinking outside of the box, this treasury team chose disruptive technologies based on APIs and machine learning. So how did they come to this decision? How did they get internal support to take the non-traditional route? And how does their solution outperform those traditional systems?

The regulations around hard currency flows, especially cross-border, are complicated, are different depending on which sector companies are in, and change frequently. However, recent regulatory changes signal a more modern approach to foreign currency controls and so an easier time for treasurers. In particular, rules around parent-subsidiary payments, licensing and royalties are being modernised to reflect the way modern business works. The tax treatment of bond purchases by foreign investors has also made local capital markets funding more attractive. The central bank’s commitment to modernisation is exemplified by its creation of the instant payments system PIX and the 2022 Open Finance project. So how are these initiatives feeding through to treasurers? 

When rates or volatilities spike, or when a new trend seems to be emerging, treasurers must weight their response: continue with the existing hedge programme, pull it or reset it? Pay up to lock in certainty, or wait for conditions to normalise? Few companies have formal procedures for evaluating the pros and cons of these choices at times of turmoil, leaving them open to decisions based on ‘regret aversion’ or on arbitrary benchmark hedge rates set when markets were very different. So, should treasurers stick with their systematic approaches or respond? What underlying business drivers inform these decisions? And if current conditions persist, will firms have to change the way they think about risk management and evaluate other more strategic options?

Traditional issues in Latin American treasury have been the slow development of digital and automated solution, the prevalence of cash as a means of payment, legal complications around core treasury risk and liquidity management techniques, tax and, in some countries, trapped cash. On all these fronts there has been a great deal of progress. Central banks are embracing open banking initiatives and developing instant payment systems.  Technology providers and local banks are rapidly building infrastructure similar to that which is now taken for granted elsewhere. And overall digitalization is accelerating – especially the use of cards, wallets and cross-border e-transactions. This panel of regional treasury veterans spare their perspectives on progress as well

For companies with liquidity to manage, rising rates are an opportunity. But the pandemic exposed significant shortcomings in treasury processes around cash, with analogue cash collection, Excel forecasting sheets, the manual use of multiple investment portals and TMS shortcomings all combining to highlight the need for more automation. In today’s environment, treasury needs the latest technology for an instant picture of cash allocations, collateral positions and counterparty exposures to boost returns but also to minimise risks. So what are best practice treasurers doing both in terms of investment management strategy and the technology used to maximise returns and monitor risks?

When this company looked at a large-scale refinancing of its outstanding bonds, it had a number of objectives. First, it needed to guarantee market access, and outstanding litigation risks complicated that access. Second, it needed to be able to raise around $4 billion cost effectively enough to make a tender offer for those outstanding bonds viable. And third, it needed to be sure that demand in the high-yield market would hold up despite record issuance in the preceding 11 months. The answer to this puzzle was the largest-ever offering of Sustainability-Linked Bonds (SLBs), which was also the first of its kind in the sector that is tied to both climate and access to medicine targets. Demand for the bonds was so strong that the multi-tranche Euro and US Dollar issue was upsized and sold at a yield below initial price talk. Following its successful SLBs offering, and the tailwind it gave to the company’s ESG journey – the company has adopted a more holistic and expansive approach towards linking its financial instruments to ESG targets, subsequently also linking its revolving credit facility (RCF) to annual ESG targets, with the aim to link additional instruments in the near future. In this session, the treasurer explains how the company came to identify the ESG-linked bond market as the key to the success of the refinancing, how it decided on the ESG goals embedded in the bonds and RCF and how they sold the story to investors.