hybrid approach to unlocking liquidity in challenging markets
DESCRIPTION
Hybrid Cash Pooling solution has been specifically built to meet the need of challenging markets while boosting the business and economic values of the companies. It is a system that uses two or more distinct cash balancing engines to maintain credit and debit positions of various accounts in the book of the service provider bank.TRANSCRIPT
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