FX

Winding Down Russia: Treasury Challenges

Report date: 
29 Apr 2022

Commentary

This was our third call on the situation in Russia. It focused on the practical challenges people are facing: nearly all participants are either running down their businesses or continuing on humanitarian grounds for products which are exempted from sanctions, particularly in the healthcare sector. However, as one participant put it, winding down is easier said than done.

Many businesses operate through franchises in foreign countries. Terminating the franchise agreement may not be enough to stop them continuing the business and using the brand name – some high profile companies which have stopped operations still have franchisees who are continuing to trade, using the name.

In some cases, the name remains on the business. This makes it difficult for the brand owner to walk away, as the reputational risk remains.

People in the healthcare sector feel a need to carry on for humanitarian reasons. For them, there are significant logistical challenges getting new shipments into the country: no flights, very little sea freight, so heavy dependency on road transport, with limited willing suppliers. They are encountering an additional issue: sanctions apply based on customs codes, and some health care products have not been appropriately coded.

In other sectors, companies continue to sell down their existing inventory – but even this can be complicated, as fresh inputs can be required to make goods saleable.

Still other participants have operations which are purely local, and do not require imports. These will typically continue to function, though moves are being made to make them fully independent.

Despite all the above, most participants continue to be able to pay down intercompany debt, pay dividends and settle outstanding intercompany invoices.

Cash operations are complicated by the need to segregate payments emanating from sanctioned banks. Again, this seems to work, and customers are usually willing to transfer their payments to non sanctioned banks.

Many Russian entities have taken steps to disguise their real ownership as a means of evading sanctions: some participants are using a database to identify the true beneficial owners to see whether sanctions apply.

Most international banks continue to function, but SocGen recently announced it is selling Rosbank. This raises the concern it may be sanctioned in the future.

Most international banks are refusing to open new accounts, and none is interested...please sign in to continue reading 

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Topics covered in this report: 
Hedging FX, Risk - reputation, KYC, AML, Sanctions, FX, Bank Relationships, payroll, Supply chain, Dividends
Service providers discussed in this report: 
Société Générale, Rosbank, Raiffeisen, Unicredit, Intesa, Citi, HSBC

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Treasury & FX in Colombia & Peru

Report date: 
25 Nov 2021

Commentary

It is a rare pleasure to have a call on Latin America where the conclusion is that things work well, but that is the case with these two countries. This is even better news, given the turbulent pasts both countries have.

Of course, our Latin American treasurers always enjoy a lively discussion, and this session was no exception. It is still Latin America, so things will never be 100% plain sailing. 

Generally, funding is no problem. Extensive use is made of intercompany loans, and currency hedging is only complicated by the bouts of volatility. One participant has also encountered issues with the value dating of hedges.

The relationships with local banks are strong, and there is often resistance to centralising banking relationships. This usually results in a mix of local and international banks – the local banks are viewed as being necessary, anyway.

As this is Latin America, taxes and the bureaucracy can be onerous. In Colombia, people tend to use trustees to get round a financial transaction tax – the same tax exists in ...please sign in to continue reading

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Topics covered in this report: 
Bank Relationships, Cash Repatriation, Corporate Treasury, FX, Political Risk
Service providers discussed in this report: 
360T, Banco Davivienda, BBVA, BNP Paribas, JP Morgan, Citi

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Treasury & Banking in Iraq

Report date: 
29 Mar 2022

Commentary

As is evident from recent events, things can go wrong when one country invades another. Iraq is very much a case in point…..

Despite the serious and much reported security issues, all participants find it relatively easy to conduct business in the country. Foreign currency is readily available, and can be remitted out of the country, though things can slow down when the price of oil declines and dollars become scarcer. However, most participants do not have large operations, and they often sell their hardware offshore in dollars. 

There are operational challenges:

Relations between the Kurdistan region and Baghdad are not good: it can be very difficult to transfer cash between the two.

Not many foreign banks are very active in the country: Standard Chartered Bank (SCB) is one of the most active, and one of the few to be present in Baghdad and Kurdistan.

In Kurdistan, tax payments have to be made through...please sign in to continue reading

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Topics covered in this report: 
FX, Bank Relationships, Banking
Service providers discussed in this report: 
Standard Chartered, Credit Suisse, SWIFT, Byblos Bank, Bank of Beirut, Abu Dhabi Islamic Bank, National Bank of Iraq

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Treasury & Banking in India

Report date: 
25 Apr 2022

Commentary

This call took place against the background of the war in Ukraine – but it was a useful chance to catch up on the ever improving situation in India.

India has always been complex, with many regulations and poor clarity. This is clear from the comments below, where participants often have different experiences on the same topic. But, overall, the economy is working well, people are making profits (this was not always the case), and regulations are becoming more user friendly, even if they remain challenging.

Business structure: most participants have one legal entity which faces customers, and a different one which acts as an international shared service centre, invoicing other companies in the group on a cost plus basis. This can lead to inefficiencies in cash management: everyone struggles with domestic cash pooling and intercompany loans, while the shared service centre has guaranteed profits and cash generation. One participant has all activities in the same legal entity, which makes life easier.

Intercompany loans within India create transfer pricing and tax challenges: there is a required or recommended interest rate of 8%, compared to deposit rates of 4% to 4.5%.

Cross border cash pooling and intercompany loans are generally very difficult: many approvals are required. Dividends are subjected to withholding tax of 15%, which is sufficient to deter some, but not all, participants from paying dividends. However, this is an improvement on the previous 22% dividend tax, which was often not creditable against tax in the receiving country.

Netting of intercompany invoices is not allowed. However, one participant is using an Indian entity to centralise all invoices within the country using a POBO/ROBO process, and limiting the transactions to a single, large, gross in/gross out settlement. They are also looking at a non resident INR account.

Participants mostly use deposits for investing their excess cash. One is using the TIDE deposit: the bank automatically sweeps fixed amounts of cash above a defined threshold into deposits. These receive a higher rate if they remain for more than two weeks, but can be released if needed, with a lower interest rate being paid.

Most participants use international banks, mainly Citi and BNPP. Most complained that Citi are reluctant to...please sign in to continue reading

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Topics covered in this report: 
Bank Accounts, Tide deposits, POBO/ROBO, Cash Repatriation, FX, Cash Pooling - domestic, Intercompany loans, Cash Pooling - cross border, Dividends, Netting, Tax
Service providers discussed in this report: 
JP Morgan, HSBC, BNP Paribas, Citi, ICICI, FXall, 360T, CoProcess

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Treasury & Banking in Ethiopia

Report date: 
22 Mar 2022

Commentary

Ethiopia is a deeply troubled country: it was the site of a major famine in the 1980s, and has a long history of civil and other wars, which have resulted in some former regions now being independent states. It has also had a series of revolutions, and turmoil continues to this day.

In these circumstances, business is – unsurprisingly – difficult, with foreign currency being difficult to access. Despite this, participants generally have successful businesses, with a remarkable consistency in approach and problems:

  • Most businesses provide infrastructure type hardware products. Typically, the hardware is sold outside the country, and paid for in hard currency. Warranty and maintenance services have to be provided onshore and billed in local currency – it is very difficult to remit the profits back to HQ, and trapped cash builds up.
  • The hardware imports are usually covered by LCs – but these can be expensive (up to 11%), and difficult to obtain. It is also not unusual for their settlement to be late, by up to nine months is one case.
  • No international banks operate in the country. This leads to the following issues:
    • The local banks often do not speak English, and have a tendency not to turn up for meetings when they have been arranged.
    • This often results in a need for face to face meetings, which can be challenging, with current travel restrictions
    • There is a need to recruit and maintain local staff to manage the resulting relationships – most treasurers do not like doing this.
    • Most processes are...please sign in to continue reading
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Topics covered in this report: 
Banking, Corporate Treasury, FX, Cash Repatriation, Letters of Credit (LC), Intercompany invoices, Sovereign Bonds
Service providers discussed in this report: 
Mashreq Bank, Nib International Bank, Wegagen Bank, Zemen Bank, Commercial Bank of Ethiopia, Awash Bank, Dashen Bank, Bunna Bank, Behran International Bank

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