Intercompany loans

Commentary

Saudi Arabia occupies a pivotal, and highly unusual, place in global politics and the world economy. As the world’s largest exporter of oil, and the holder of the second largest reserves of oil and gas, it is an essential part of the global economy – and has traditionally been relatively aligned with western and capitalistic countries. At the same time, it is a profoundly religious absolute monarchy, which practices a particularly conservative brand of Islam. This has always placed limits on its co-operation with western countries – limits which are being tested even more than usual in the current environment.

The current situation is particularly complex, as was clear in the call. Saudi Arabia has always imposed severe restrictions on foreign companies and banks, requiring local partners, and imposing local signatories and approvers for most, if not all, transactions. Limitations on where foreigners could live, and what they could do, have meant that many expatriate employees preferred to live with their families in Dubai, and commute to Saudi for the work week. However, the country has recently launched “Vision 2030”, which aims to open up the country and prepare it for a post oil future. This ranges from promoting tourism, allowing women to drive cars, and potentially allowing alcohol sales in specific places, to mega projects such as building a new city in the desert. It also includes pushing MNCs to transfer their regional headquarters to the kingdom. At the same time, foreign ownership is now allowed, either using a Saudi sponsor (with fees), or by paying 20% taxes. 

These developments are viewed positively by the participants – though several cautioned that there are many conflicting undercurrents in Saudi society, and the situation can always change at short notice. In all cases, Saudi Arabia is a large, and profitable, market, to which all our participants are fully committed, irrespective of the operational challenges.

Treasury practicalities:

• Nearly all participants sell into Saudi from an offshore location, usually in USD. The currency is pegged to the USD, and there are no exchange controls, so things generally work well.
• Several participants have opened local branches or subsidiaries, either to provide services or to act as sales offices, or technical offices to manage regulatory issues.
• To participate in the mega projects being run by the government, it is a requirement to transfer any regional headquarters operation to the kingdom. There is direct competition with other countries in the region for this, particularly the UAE.
• Saudi regulations state that the bank signatories and transactions mus

Commentary

Thailand is a large and relatively prosperous country, with an area close to that of France and a population of nearly 70 million. It has a long tradition of fierce independence – it is the only country in the region which was never colonised. Today, the country participates actively in the global and regional economy – it is a member of ASEAN, but it retains a distinctive approach.

The result is a country which is modern and business friendly, but which continues to present some challenges. Generally, our participants find that it works: they are able to do cross-border funding into, and out of, Thailand, and include it in various cash pools. But there are remnants of FX controls – recently relaxed – and it can be challenging to know exactly what the rules are. 

Main highlights:

• It is easy to convert Thai bhat (THB) into foreign currency, usually the USD. Traditionally, there have been documentation requirements, but many participants find these are being relaxed.
• During the Asian crisis of 1997 to 1998, Thailand forbade the remittance of THB out of the country. This is now allowed, but apparently for the settlement of THB denominated invoices: the consensus was that it.......continues