Hybrid Approach to Unlocking Liquidity in Challenging Markets

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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 …

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.

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  • 1. Hybrid Approach t oUnlock ing Liquidit y in Challenging Mark et sMust afa K ILIÇR egional T reasury & Goup Insurance ManagerGroup T reasuryIndesit Com pany Int ernat ional Business S.A. | Sw it zerlandEuroFinance Int ernat ional Cash & T reasury Managem ent 19 t h Annual Conference6-8 Oct ober 2010, Geneva Palex po, Geneva, Sw it zerland
  • 2. Agenda Challenges facing t reasuries R eshaping t he t reasury Liquidit y solut ions cont inuum T rapped in cash Becom ing hybridT he hybrid cash pooling solut ion Q&A Long w ords in short
  • 3. T he new look of cash and t reasury m anagement is being chast ened by risk and shaped by globalizat ion.
  • 4. In com plex environm ent s, cross-borderm ovem ent s and abilit y t o hold offshore and FCY account s are highly regulat ed.
  • 5. Local regulat ions oft en rest rict int er -com panym ovem ent s or require cent ral bank approval and report ing.
  • 6. T reasurers are cont inuously seek ing a bet t er plat form w here t o st rat egically m anage t heent ire cash m anagem ent process t o increase t he int rinsic value of t he business.
  • 7. It is not feasible t o have one approach for allcount ries w hen it com es t o cash and t reasurym anagem ent due t o different jurisdict ions in each count ry.
  • 8. R eshaping t he t reasury Harm onizat ion Liberalizat ion Cont rol Focus Cent ralizat ion Technology Out sourcing
  • 9. Liquidit y solut ions cont inuum Dom est ic Cash Concent rat ion Dom est ic Cross Border Not ional Not ional Pooling Pooling Cross Border Cash Concent rat ion
  • 10. Som e ent it ies m ay not be perm it t ed t opart icipat e int o cash concent rat ion or not ional cash pooling agreem ent .
  • 11. Cash concent rat ion and not ional cash pooling give rise t o com plex legal, regulat ory, account ing and t ax considerat ions.
  • 12. T rapped w it h cash concent rat ion
  • 13. T rapped w it h not ional cash pooling
  • 14. Hybrid approach t o cash pooling Dom est ic Cash Pooling Cash Concent rat ion Not ional Cash Pooling Cross-Border Cash Pooling
  • 15. “ Hybrid cash pooling” is a syst em t hat uses t w o or m ore dist inct cash balancing engines t o m aint ain credit and debit posit ions of various account s in t he book of t he service provider bank .
  • 16. Freely convert ible currencies.
  • 17. Legal ent it ies t hat m ust be allow ed t o open a local and foreign currency bank account out side it ’s count ry.
  • 18. A financial inst it ut ion t o provide t he service.
  • 19. Becom ing hybrid ZBA NCP HCP Overdraft Part icipant Header Header Part icipant Account s Account Account Account s €50 CR €10 CR €10 DR €10 DR €20 DR €40 DR €20 CR €40 DR
  • 20. Becom ing hybrid ZBA NCP HCP Overdraft Part icipant Header Header Part icipant Account s Account Account Account s €40 CR €10 CR €10 DR €10 DR €10 DR €40 DR €20 CR €40 DR
  • 21. Hybrid cash pooling ZBA NCP HCP Overdraft Part icipant Header Header Part icipant Account s Account Account Account s €40 CR €10 CR €10 DR €10 DR €10 DR €40 DR €20 CR €40 DR
  • 22. Hybrid cash pooling ZBA NCP HCP Overdraft €20 CR Part icipant Header Header Part icipant Account s Account Account Account s €40 CR €10 DR €10 DR €10 DR €10 DR €40 DR €20 CR €60 DR
  • 23. Hybrid cash pooling ZBA NCP HCP Overdraft €70 CR Part icipant Header Header Part icipant Account s Account Account Account s €40 CR €10 DR €10 DR €60 DR €10 DR €40 DR €20 CR €110 DR
  • 24. Hybrid cash pooling ZBA NCP HCP Overdraft €70 CR Part icipant Header Header Part icipant Account s Account Account Account s €40 CR €10 DR €60 DR €10 DR €10 DR €40 DR €30 DR €60 DR
  • 25. Hybrid cash pooling ZBA NCP HCP Overdraft €70 CR Part icipant Header Header Part icipant Account s Account Account Account s €10 DR €10 DR €10 DR €10 DR €10 DR €40 DR €30 DR €60 DR
  • 26. Unlock ing t he liquidit y in hybrid w ay
  • 27. What does it t ak e t o st ep up? It t ak es t h ree t o fi v e m on t h s t o bu i l d a h ybri d en gi n e 6-8 w eek s 3-4 w eek s 5-7 w eek s 1-2 w eek s St ruct ure P rovider P lat form Service •P lan •Part icipant s •Docum ent at ion •Test s •Design •Evaluat ions •Im plem ent at ion •Trainings •Requirem ent s •Select ions •Ex ecut ion •Deploym ent
  • 28. Offers a broad spect rum of benefit s Creat es efficient w ay t o consolidat e liquidit y w it h bet t er geographic coverage. Elim inat es local borrow ing needs w hile reducing corporat e guarant ees for local credit lines. Brings econom ies of scale in financing condit ions w it h increm ent al incom e st at em ent im provem ent s. Enhances cont rol of cash balance and increases it s visibilit y. T reasury can overdraw in currency of choice. Maint ain local bank account s t o serve local needs.
  • 29. Offers a broad spect rum of benefit s Elim inat es int er-com pany loans w hile creat ing new funding vehicle. R educes or elim inat es FX and sw ap t ransact ions t o offset t he debit posit ions of t he account s. R educes num ber of operat ional t ransact ions and it s cost . No physical m ovem ent s of funds across ent it ies or account s at header account level. No change in ow nership of cash. No addit ional hardw are/soft w are on user side.
  • 30. T hings needed t o be considered Hybrid cash pooling prohibit ed or m ay be subject t o recharact erized in som e count ries. Som e ent it ies m ay not be allow ed t o part icipat e int o hybrid cash pooling agreem ent . Occasionally requires physical m ovem ent of funds across account s. May require t he parent com pany guarant ee. Invest m ent st rat egy for ex cess liquidit y. T ax and legal opinion.
  • 31. Long w ords in short Cash in ex cess of w ork ing capit al at local level no longer rem ain “ t rapped” or subject t o local invest m ent vehicles. Short t erm funding in t he currency of choice w it hout t he t radit ional reliance of int er- com pany loan st ruct ures. Hybrid solut ions have been specifically built t o m eet t he needs of challenging m ark et s w hile boost ing t heir business and econom ic values for robust fut ure.
  • 32. mustafa kilic@me com