Future-proofing Treasury: A Roadmap to Best Practice
HSBC's Global Liquidity and Cash Management’s Annual Natural Resources and Utilities Forum on March, 22 2018
Ensuring your treasury function is in the best possible shape to respond to imminent threats and opportunities requires preparation, imagination, and flexibility. In March 2018, HSBC hosted its second annual Global Liquidity and Cash Management Natural Resources and Utilities Forum in Houston, USA, to discuss the future of the energy sector. One of the highlights of the event was a dynamic roundtable discussion, an edited version of which appears below, in which industry experts shared their insights and real-life experiences around future-proofing treasury.
Eleanor Hill (Moderator)
Regulation and reform
Eleanor Hill, TMI:
What are the key regulatory and reform trends impacting the future of corporate treasury and the energy sector?
An HSBC representative:
Looking at regulation and reform in the broadest sense, we see four main trends influencing how corporate treasurers are preparing for the future. The first is the rise of protectionism across the globe. There are the obvious examples of this, such as Brexit in the UK. Many of President Trump’s new policies in the US also have a protectionist slant. But this trend is not limited to the Western world. China and some ASEAN nations have one way or another put in place rules like enforcing conversion of 75% of their export earnings to local currency, restriction on movement of local currencies offshore and the like.
Protectionist policies naturally have an impact on the way treasury departments operate. Moreover, these changes can happen rapidly, with little warning, meaning that treasurers now have to be more agile than ever before – and increasingly connected to the macro world.
The second trend we see is the rapidly evolving payments landscape. National real-time payment schemes are now either live, or in the process of implementation, in over 20 markets worldwide.
From a treasury perspective, the move to instant payments signals the end of clearing currencies via batch runs, Monday to Friday. Payments will now be coming in on a real-time basis, seven days a week. As such, treasurers need to think strategically about how to put those monies to use, even at weekends. In addition, system changes may be required in order to reap the benefits of receiving monies in real-time. Elsewhere, suppliers may start requesting real-time payments, which is yet another angle to consider.
An additional shift in the operating environment is the move towards digital commerce and communication, and the cybersecurity risks that come with that. Treasurers must be ever more vigilant around new threats to the business, especially given their role as gatekeepers of company cash.
The fourth trend we see, which is specific to the natural resources and utilities sector, is the rise of national oil companies internationally. Many are now expanding overseas and entering new markets, or ones where sector reforms have taken place, such as Mexico. Going forward, this means that we will likely see more international joint ventures – which come with their own challenges. To succeed, treasurers must enter into these with an open mind and be prepared to find new ways of working, whilst embracing cultural differences.
Eleanor Hill, TMI:
Coming back to the point around protectionism, let’s focus for a moment on US tax reform, which is the most significant overhaul of the US tax code in 30 years. Could you please share some of your strategic thinking around US tax reform? How should treasurers be preparing?
Brook Ballard, Cheniere:
It might be a cliché, but cash is king. So, US tax reform provides a significant incentive to reassess the ROI of your cash, and reconsider how you can utilise it best – whether that be in a location abroad or in the US. As part of that process, Cheniere will be looking closely at where we hold debt around the world and weighing up the rising cost of that debt.
As an exporter of liquefied natural gas (LNG) to far-flung markets, including China, we also need to ensure that we continue to build and invest in the infrastructure in order to support growing global demand. This will more than likely mean putting additional cash to use in the US.
Tamara Saront-Eisner, Air Liquide:
Overall, we see US tax reform as a positive change – but being a French-headquartered company, we have a few different challenges to consider. One is the excise tax that will apply to cross-border payments between affiliates of the same company – and Air Liquide is largely funded through intercompany loans, so that will be difficult. The new tax also applies to everything from royalties to interest, and even CapEx, meaning that we have a lot to reconsider.
Soon after the reforms were announced, we put in place a roadmap that involved reshaping our capital structure, looking again at our interest cost, and thinking about the repatriation of dividends from some of our subsidiaries. Ultimately, for us, it’s about ensuring we can continue to efficiently and effectively fund our US operations. That may mean turning to other US sources of capital to fund our operations in the US.
Although we were quick to set up our roadmap to respond to US tax reform, there is still a lot of work to be done in terms of assessing the impact – especially in areas such as the taxation of intellectual property (IP).