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1. Sponsored by:
Wednesday
Sept. 10, 2014
www.bloombergbriefs.com
QUOTED
"Blocking Russia from the SWIFT
system would be a serious
escalation in sanctions and would
most certainly result in equally
tough retaliatory actions by
Russia. An exclusion from
SWIFT would not block major
trade deals but would cause
problems in cross-border banking
and that would disrupt trade
flows.”
— Chris Weafer, a senior partner at
Moscow-based consulting firm Macro Advisory.
Page 2.
INSIDE THIS ISSUE
CHINA CURRENCY: Yuan deposits in
South Korea increase; Hong
Kong-Shanghai equity link to boost yuan;
Deutsche Bank authorized for yuan
clearing; yuan now seventh-most traded
currency. Page 3.
ON THE RECORD: Q&A with David
Blair, independent treasury consultant,
about the issues facing treasurers
globally and in Asia. Page 7.
HEDGE ACCOUNTING: Changes in
IFRS 9 are seen as a big improvement
over IAS 39 in terms of what qualifies as
"hedgeable." Page 9.
INDUSTRY FOCUS: This month
features a look at the communications
industry's working capital and free cash
flow ratios, plus Asia lending and bond
issuance. Page 10.
DATA POINT OF THE MONTH
Asia syndicated lending year to date
through August:
$375.7 billion
Versus $293.6 billion for the same period
last year, according to Bloomberg data.
Yen, Euro May Have Further to Fall as Volatility Returns
BY MARIKO ISHIKAWA, RACHEL EVANS, DAVID GOODMAN AND ANDREA WONG
The yen and euro seem poised to weaken further as foreign exchange volatility
increases from all-time lows, making it more expensive for corporates to hedge their
currency exposures.
The Bank of Japan and European Central Bank’s unprecedented easing policies sent
the yen to the weakest level since October 2008 in the first week of September, while the
euro capped its longest losing streak since its 1999 debut and was trading at its lowest
since mid-2013.
Stimulus measures from global central banks are emboldening traders to raise bets
against the yen to the highest level since January. The difference in the number of
wagers by hedge funds and other large speculators on a decline in the yen, compared
with those on a gain, increased to 117,308 contracts in the week through Sept. 2,
according to U.S. Commodity Futures Trading Commission data. That’s the largest
net-short position in the futures market since the period ended Jan. 14.
Meanwhile, the decision by ECB President Mario Draghi on Sept. 4 to push the
deposit rate further below zero and expand the money supply by purchasing
asset-backed securities is also helping stoke foreign exchange volatility. JPMorgan's
Global FX Volatility Index has bounced up 25 percent from an all-time low on July 3.
Increased volatility generally makes currency hedging more expensive.
Record-low rates in the euro area will probably encourage traders to borrow in the
region and invest the proceeds in economies with higher-yielding assets.
“The biggest takeaway is they want to bring the balance sheet back to 2012 level,”
said David Woo, head of global rates and currencies in New York at Bank of America
Corp.’s Merrill Lynch unit. The Fed’s assets total is $4.42 trillion, widening the difference
with the ECB’s balance sheet to a record $1.8 trillion. The Bank of Japan finished its
meeting on Sept. 4 by maintaining its record debt purchases of 60 trillion yen ($570
billion) to 70 trillion yen a year.
“The euro and the yen are both very attractive as funding currencies, and the dollar
has really dropped out of that category,” said Daniel Katzive, a director and head of
foreign-exchange strategy, North America, at BNP Paribas SA in New York.
FX Volatility Increases as the Euro and Yen Dive
TRANSACTION BANKING

2. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 2
TRANSACTION BANKING
Swift Justice: One Way to Make Putin Howl
Uber May Be Blocked in
BY CAROL MATLACK, BLOOMBERG NEWS, AND JENNY JOHNSON, BNA
India as RBI Tightens Rules
The West’s ultimate weapon against Russian President Vladimir Putin could be a
little-known organization housed in a neoclassical building on a wooded campus in a
Brussels suburb: the Society for Worldwide Interbank Financial Telecommunication,
or SWIFT.
Britain is pressing the European Union, whose laws govern the cooperative, to bar
Russian banks from using SWIFT. Being frozen out could wreak havoc with Russian
trade and investment. In an informal survey published on Sept. 2 by a Russian
banking-industry website, banki.ru, representatives of several banks said loss of access
to SWIFT would severely disrupt their business. “According to the Russian association of
SWIFT, the number of users in the Russian Federation ranks 22nd in the world in
volume of traffic sent,” the notice said. Russian companies are wary of the possibility of
being cut off from SWIFT, despite the moves toward alternatives, according to
Alexander Gentsis, a member of the Board of Directors at Diasoft, a Russian financial
software company.
The Russian Ministry of Finance announced on Aug. 27 that it has prepared legislation
together with the central bank on the creation of a Russian alternative. The legislation
will move forward once the central bank is technologically ready to process payments,
the ministry said, according to news reports posted to its website. The Russian Union of
Industrialists and Entrepreneurs, a business group with close ties to the Kremlin,
announced Sept. 4 that it has sent the central bank its plan for an alternative to the
SWIFT interbank payments system.
Building a system would take time and big banks outside Russia might hesitate to join
for fear of reprisals from the U.S. and the EU — or even from SWIFT itself, since the
cooperative’s bylaws forbid members from participating in activities that could harm it.
If Russia were locked out of SWIFT, it could find other ways to move money
internationally. The leading trade group for Russian banks says that its members could
transfer funds by other means, including secure Internet and fax connections. “It is much
less convenient and much more costly for all sides of the process, but it is a real
solution,” says Serge Penkin, an official at the Association of Russian Banks.
Back-channel arrangements couldn’t replace “the security and the volume that SWIFT
provides” for Russia’s $2 trillion economy, says Richard Reid, a senior research fellow
who studies finance and regulation at the University of Dundee in Scotland.
The EU is not rushing to wield SWIFT as a sanctions weapon. The subject wasn’t
discussed during an Aug. 29-30 summit meeting of EU leaders in Brussels. Germany is
worried that a SWIFT ban would create huge costs on both sides, according to a person
familiar with the EU discussions. “Blocking Russia from the SWIFT system would be a
very serious escalation,” says Christopher Weafer of Moscow-based consulting firm
Macro-Advisory, “and would most certainly result in equally tough retaliatory actions.”
The EU’s trade with Russia totaled $390 billion in 2013. EU exports to Russia fell 14
percent during the first five months of this year as the Ukraine conflict flared.
BY ADI NARAYAN
Uber Technologies Inc., maker of the
ride-hailing application that has disrupted
taxi networks around the world, may face
a setback in India after the central bank
closed a loophole that let it provide a
simpler payment system compared with
local rivals.
All transactions involving credit cards
issued in India for goods or services in
the country must have an additional
authentication system at each point of
sale, the Reserve Bank of India said in a
statement on Aug. 22. Evasion of these
rules by some companies has led to an
outflow of foreign exchange, the RBI said.
Uber, which landed a $17 billion
valuation in its last round of funding,
would have to change its app to add an
additional level of authentication or adopt
a different model to comply with these
rules. That would put its card
management on par with local rivals
including Mega Cabs Ltd. and Meru Cab
Co., that have claimed Uber’s trademark
ride-payment system violates Indian
foreign-exchange laws, according to a
report in the Economic Times daily.
Customers using credit cards to pay for
taxis hailed through local companies,
must enter the security code or a
one-time-password delivered by text
message for each transaction, Siddartha
Pahwa, chief executive officer of Meru,
which runs a fleet of about 10,000 radio
taxis in the country, said. Uber’s system
violates that rule, he said.
Uber’s Asia spokeswoman Evelyn Tay
didn't immediately reply to an e-mail.
IN BRIEF
PTT Exploration and Production,
a subsidiary of PTT pcl, the
state-owned oil and gas business, has
become the first private Thai company
to get a treasury center license. The
first stage of the license covers
foreign currency liquidity management
and the company will use the Bank of
Thailand’s Automated Cash Pooling, it
said in an e-mailed statement.
— Tony Jordan
DBS Bank has named John
Laurens as the head of its Global
Transaction Services. He will replace
Tom McCabe, who will relocate to the
U.S. to head DBS’s franchise there
from Oct. 1, the bank said on Sept. 1
in an e-mailed statement. Laurens
was HSBC’s Asia-Pacific head of
global payments and cash
management.
— Sanat Vallikappen
Deutsche Bank has named Peter
Massion, formerly head of
Transaction Banking for Japan at
Standard Chartered, as head of
Global Transaction Banking, Trade
Finance and Cash Management
Corporates for Deutsche Bank in
Japan, according to an e-mailed
statement. The appointment was
effective Sept 1.
— Gearoid Reidy
CHINA CURRENCY

3. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 3
CHINA CURRENCY
Bank of China Eyes Yuan Deposits in South Korea
BY JIYEUN LEE
Bank of China Ltd. plans to hire more staff in South Korea and expects yuan deposits
in the country to triple to a record $20 billion in 2014 as the two nations start direct
trading of their currencies.
The number of employees at the local branch of China’s fourth-largest bank by market
value may rise to 160 from 135 by year-end as risk management as well as trading in
foreign exchange and derivatives expand, Huang De, the lender’s Korea Executive
Officer, said in an interview in Seoul.
South Korea’s central bank reported that savings in the Chinese currency rose to an
all-time high of $16.19 billion in July, compared with the equivalent of $6.67 billion at the
end of 2013. The governments of the two Asian countries agreed on July 3 to make their
currencies mutually exchangeable in Seoul and conclude free-trade talks by the end of
this year.
“Despite the jump in yuan deposits here, it’s still at an early stage of development as
savings are mostly by financial institutions,” Huang said in his office. “Free trade
agreements can increase yuan usage by South Korean corporates, and consumers can
also be attracted by the higher yields.”
China is South Korea’s biggest trading partner, with shipments amounting to $229
billion in 2013, figures from the trade ministry show.
Investors should buy the yuan against the won as the use of Chinese currency in the
two nations’ bilateral trade surges, according to Christy Tan, head of markets strategy
for Asia at National Australia Bank. CNY/KRW will advance to 179 by year-end,
implying appreciation of more than 7 percent from 167 now, according to Tan. That
compares to a forecast for 166 in a Bloomberg survey of strategists.
– Yanping Li and Masaki Kondo
A test program linking the Shanghai
share market with Hong Kong's went
smoothly, Hong Kong Exchanges
and Clearing Ltd. said on Aug. 24.
The mutual market access program,
called Hong Kong-Shanghai Stock
Connect, is due to start within six
months of its announcement in April
by China's Premier Li Keqiang. “The
Hong Kong-Shanghai Stock Connect
has drawn investment demand for the
yuan as it signals further opening of
China’s financial markets,” said
Banny Lam, Hong Kong-based
co-head of research at Agricultural
Bank of China International
Securities Ltd.
– Fioni Li
Deutsche Bank signed a
memorandum of understanding with
the Bank of China on Aug. 28 for the
clearing and settlement of offshore
yuan in Frankfurt, Lothar Meenen,
Deutsche Bank’s head of trade
finance and cash management
corporates for Germany said in an
interview. The move aims to increase
liquidity between China and Germany,
and support a yuan hub in Frankfurt.
Deutsche Bank is the first German
bank to sign a MoU with the BOC.
Clearing contracts with other banks
are prepared and ready to be
approved in the coming weeks, said
Bernd Meist, who heads BOC’s
Frankfurt operations.
– Weixin Zha
The Chinese yuan accounted for
1.57 percent of global payments in
July, up from 1.55 percent in June,
according to the Society for
Worldwide Interbank Financial
Telecommunications (SWIFT).
Europe accounted for 10 percent of
yuan payments worldwide by value,
and the U.K. ranked first in the region
for yuan transactions.
– James Regan
IN BRIEF
Yuan Climbs to Six-Month High
Source: Bloomberg
The yuan has rallied 1 percent this quarter, from the end of June to Sept.9, as China’s
economy improved, paring this year’s loss to 1.4 percent, still Asia’s worst performance. The
monetary authority also doubled the yuan’s trading band to as much as 2 percent either side
of the fixing in March.
— Justina Lee, Bloomberg News

4. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 4
SPONSORED CONTENT
China & the International RMB: A New Normal
BY SANDIP PATIL, REGIONAL HEAD, GLOBAL LIQUIDITY AND INVESTMENTS, ASIA PACIFIC, TREASURY AND TRADE SOLUTIONS, CITI
China’s leading position on the world economic
stage is now universally acknowledged, and
companies of all sizes and industries are
positioning China at the heart of their growth
strategy. As China becomes increasingly
integrated into global networks, RMB’s role as a
world currency, not only for international trade
but as a treasury, capital and reserve currency is
becoming more strategic. Some companies are
already recognizing that the emergence of a
new world currency will change the way they
conduct their business in China and are
embracing new opportunities to use RMB to
support their business strategy there. However, despite China’s pivotal
position in international trade, a large proportion of corporations have yet to
make the shift and leverage the opportunities to use RMB and include it in
their currency mix, despite the potential benefits of doing so.
Not ‘If’, But ‘When’
Treasurers doing business in China are no longer talking about ‘if’ they will
use RMB, but rather ‘when.' Furthermore, competitors are increasingly taking
advantage of the opportunities that RMB offers, so companies should be
acting sooner rather than later. In March 2014, RMB became the seventh
ranked global payments currency by volume (source: SWIFT) and is already
the second currency globally for trade finance after USD at 9 percent of flows,
an achievement considering its zero starting point just a few years ago.
For those that have not yet embarked on their RMB journey, or are at the early
stages, how should they go about it? The logical starting point for most
corporations is to use RMB to settle cross-border trade, whether inbound,
outbound or a combination, an opportunity that has existed since 2009. The
advantages of doing so are well-documented, and include better commercial
conditions (as counterparties’ FX risk is eliminated), greater flexibility in
managing cash, liquidity and risk within China and access to a wider
community of buyers and/ or sellers. Documentation is less onerous when
using RMB rather than foreign currencies, accelerating the business process.
Payment terms can also be more attractive: up to 210 days when using RMB,
compared with 90 days in foreign currency, resulting in obvious working
capital benefits.
Connecting China
Many treasurers are less concerned about settling trade in RMB however,
than how they will manage the resulting surplus or deficit, including managing
funding gaps across legal entities, both within China and cross-border. This
has been a challenging issue in the past, but connecting China within a
regional or global liquidity structure can now bring considerable advantages
for cash-generative businesses and there are now a variety of opportunities to
do so. For example, cross-border on behalf structures, payments netting and
lending/ sweeping are now feasible, and banks such as Citi are experienced in
supporting customers in these techniques. One issue that companies
operating in China need to consider is the disconnect between the RMB
onshore (CNY) and offshore (CNH) markets. For companies with surplus
cash, the onshore market is more liquid and deposit rates are higher. In
contrast, for net borrowers in RMB, offshore borrowing may be cheaper. The
difficulty is that many companies have cash surpluses or deficits at different
times, so our customers rely on Citi as a global bank to advise on the most
appropriate liquidity solution.
As offshore RMB centres in Singapore, London and Taipei develop, in addition
to Hong Kong, liquidity pools are gradually deepening and the range of
available liquidity and risk management instruments is growing. Pretty soon,
treasurers should be able to manage CNH in the same way as any other
international currency which eases the way that business is conducted with
China. At Citi, we have standardized RMB rates across trading centres, and
established a cohesive network of RMB business managers to help our
customers reduce the cost of doing business in China, support effective
trading relationships and manage currency and liquidity risk effectively.
Taking a consistent approach
Just as managing RMB liquidity both domestically and cross- border is
becoming easier, opportunities to set up efficient
Continued on next page...
Top tips on embarking on the RMB journey
Manage RMB liquidity in the offshore market — evaluating either investment or funding options
Ensure controls in encapsulating on cross border sweeping without adversely affecting working capital management in China
Cross border controls in China are not yet fully relaxed, and therefore having controls in place in ensuring compliance
Review risk management of different yield curves
While pricing can be more volatile than onshore, depending on market liquidity, CNH borrowing is becoming increasingly compelling as liquidity in other
markets continues to be constrained and investor appetite for CNH continues strongly.

5. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 5
Continued from previous page...
SPONSORED CONTENT
cash management processes are also increasing. Through free trade zones,
companies can now centralize payments processing through an SSC or
payments factory using on-behalf structures and perform payments netting,
enabling companies to centralize and streamline payments in a way that is
more or less consistent with other regions than in the past.
There still remain some challenges; for example, regulatory conditions exist in
settling transactions and processes are less automated than when using
established cross-border trading currencies such as USD, but significant
progress is being made.
Approaching the final stage
As developments in cross-border trade and liquidity increase, the final step in
the RMB becoming the default currency for multinationals doing business in
China is its development as a capital currency. With cross border controls still
in place, onshore and offshore markets cannot converge, and with restrictions
on foreign direct investment, RMB is still in a nascent stage of becoming a risk
and capital currency. While there are changes underway, allowing transfers of
RMB between China and offshore centers have certain conditions. As the
obstacles to RMB becoming a capital currency reduce, we are likely to see
substantial growth in the number of corporations, banks and governments
including holding RMB as a reserve currency. This will cement its importance
as a world currency.
An experiment in free trade
The journey towards liberalization has accelerated recently with the launch of
the China (Shanghai) Pilot Free Trade Zone (SFTZ) in September 2013.
Although its scope is currently limited, several pilot programs will be expanded
nationwide. (Further details are expected.)
The SFTZ covers nearly 29 square kilometers and aims to stimulate trade and
investment, accelerate functional, administrative and regulatory transformation
and provide experience and insights into the opportunities and challenges of a
free economy. As a relatively new venture, there remain some issues requiring
clarification and not every organization is eligible, nor would necessarily
benefit from opening an entity in the SFTZ; yet, for select companies, the
advantages could be material. Significantly, the SFTZ represents a major step
towards liberalization in China and could prove a catalyst for wider RMB
capital account convertibility, interest rate liberalization and RMB
internationalization.
Act now, adjust later
Even if economic growth in China experiences periodic slowdowns, which is
inevitable as the economy matures, China will undoubtedly continue to
strengthen its position as a dominant global trading partner. As the journey
towards RMB liberalization progresses, RMB is becoming a strategic global
currency both for doing business in China and more widely. For example,
there will increasingly be demand to settle trade transactions in RMB between
counterparties that do not use USD as their base currency. While the benefits
will differ by organization, ultimately it will be better to learn the game now
rather than be beaten later. Citi works with customers to phase their RMB
adoption in a way that is appropriate to their business and that facilitates,
rather than interrupts, their strategic ambitions in China. There will
undoubtedly need to be adjustments and revisions in companies’ RMB
strategy over time, particularly as regulatory revisions offer new opportunities,
but adopting RMB is critical to cementing a company’s competitive position
both within China and potentially globally. This is inevitable and this is the time
to experiment with the internationalizing RMB and China.
Case Study: Roche — World’s First Automated RMB Cross-Border Pooling Solution
Isolated from the global cash pool, Roche China’s
surplus cash could not be centralized with global
liquidity. Aside from overseas entities unable to
leverage Roche’s successful operations in China,
Roche’s Treasury in China had to seek external
borrowing through bank loans and trade financing
each time its cash positions went into a negative
position, which occurred on a monthly basis, thus
incurring financing, foreign exchange and
operational costs.
With RMB internationalization, and in
partnership with Citi, Roche implemented a RMB
cross-border sweeping structure that, as a pilot of
the SFTZ initiative, allowed Roche China to lend
and borrow funds with overseas affiliates, truly
integrating China with the global pool.
Registering an entity in the SFTZ
YIELD CURVES

6. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 6
YIELD CURVES
Asia Interest Rates Show Tightening
Interest rates in Asia show a slight tightening bias, implying an
average rise of 0.29 percent during the next one year. This term
premium seems appropriate to economic fundamentals as the
average implied global move (which includes Europe), one year
out, is 0.18 percent.
Chinese rates markets are re-normalizing. One-year rates
onshore have been relatively steady at about 3.6 percent, while
implied one-year offshore rates have risen to 2.4 percent from 1
percent in April. These markets are likely to converge as QFII
quotas are relaxed.
— Yoon Chang, Application Specialist, Emerging Markets Interest Rates and
Foreign Exchange, Bloomberg
USD
JPY CNY
SGD AUD
* Current vs. six months ago for SWAP, investment grade and high yield rates. Current as of Sept. 4, 12:00 EDT.
Q&A

7. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 7
Q&A
Regulatory Reforms Spur Centralization of Corporate Treasury Functions
David Blair spoke to Bloomberg Brief editor
Justine Bornstein about treasury issues global and
local. Blair stared his career with Price
Waterhouse and later ran treasury departments at
ABB, Nokia and Huawei. He talks about how
macro issues and regulations affect treasurers,
and where Asia is leading the way.
Q. What are the main macro issues
facing corporate treasurers these
days?
A. Number one has to be post-GFC
regulatory change. Regulators are trying
to create a safe banking system. Safe
seems to mean holding sovereign debt
and possibly housing. This leaves
businesses starved for funding, hence the
massive build-up of cash on corporate
balance sheets and the pervasive move
from bank funding to bond issuance.
Dodd-Frank and EMIR introduce
complications into important hedging
programs. The requirement to register
trades is a hassle exacerbated by
divergent regulatory regimes. If MNCs
have to collateralize trades, this will
introduce potentially disastrous cash flow
volatility — one airline calculated that its
fuel hedging program would have
bankrupted it multiple times when
back-testing the impact of margin calls.
Treasurers are responding to these
risks with an increased emphasis on cash
visibility and forecasting. That and
increasing regulatory burdens are driving
more centralization — of data and
operational processes, if not decision
making — aided by the ease of access
brought by cloud computing and surging
computing resources. These
developments aid treasurers in their goal
of containing risk and reducing costs.
Q: Are there any issues that affect
corporate treasurers in Asia, in
particular?
A. Treasurers in Asia deal with global
issues as well. We can add some twists.
Last year’s "taper tantrum" (when
Bernanke tried to taper quantitative
easing) wreaked havoc on many
emerging markets. Fortunately, this was
short lived. It showed that these markets
are vulnerable to G3 policy changes,
which heightens uncertainty both in terms
of access to funds and in terms of risk.
When Asian treasurers used to talk
about regulations, they meant exchange
controls, customs and tax in developing
markets. At a time when those kinds of
regulations are steadily improving — the
best example is China opening up cross
border CNY for companies — Asian
treasurers are now facing a regulatory
tsunami from western authorities.
This is accelerating, albeit slowly, the
roll out of treasury management systems
and effective cash management in the
region. Asian treasurers are playing catch
up with their western peers.
Q: You’ve mentioned that the
regulatory environment is not as
tightly monitored on some levels as
the U.S. and Europe. Examples?
A: In terms of DF and EMIR, you can say
they have not yet arrived in Asia. Local
regulators are drafting derivative
regulations, and these efforts look likely to
increase complexity. But most derivative
reporters in Asia are local treasuries of
western MNCs.
So, broadly, yes, derivative regulation
has not hit Asia. We are all scrutinizing
the clouds on the horizon to determine
whether it will be a shower or a typhoon.
Q: In some areas, however, there is
more regulation. What special issues
does that raise for corporates doing
business in Asia?
A: Several Asian countries have
exchange controls and non-convertible
currencies. This, together with tax issues,
causes a lot of trapped cash in Asia.
Asian treasurers have long experience
with these problems, and they are
increasingly well managed.
It does mean that it can be hard to fund
Asian operations when you need local
currency. Another sub-optimization is
caused by restrictions on intercompany
funding. India’s new companies act (so
far) seems to have made intercompany
funding almost impossible. In that case,
Asian treasurers can see countries where
one subsidiary has to borrow from local
banks while another subsidiary has to
deposit with local banks. Good for banks,
very bad for corporates.
Q: Are there any areas where Asia is
out front?
A: Asian central banks are upgrading
clearing systems extensively – largely
leapfrogging developed markets.
ISO20022 based clearing systems are
rolling out all over the region. (And yes it
does handle non-Roman character sets.)
Immediate or near real time low value
payments are becoming more common
than in the west.
This is benefiting corporates as well.
There has been a substantial move from
checks to electronic payments; in value
terms the majority is already there. One
bank has even set up a team to help
client paper-to-electronic (P2E)
transitions, calling vendors to get their
banking details and making sure these
are correctly recorded in ERPs,
persuading customers to pay
electronically, and so on.
Intra-regional trade in Asia has become
bigger than global trade. Asian corporates
and banks were the first to use SWIFT’s
TSU and BPO solutions. Supply-chain
finance is very active here.
Age: 53 Based in: Singapore Hometown: Geneva
Degrees: BA Hons, FCCA, MCT
Favorite recent movie: "Cloud Atlas"
Recommended book: Self Comes to Mind (Antonio Damasio)
Best recent vacation: Diving with manta rays in Lembongan
with my kids
Favorite sports team: Ashtanga Yoga Research Institute,
Mysore
SYNDICATED LENDING

8. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 8
SYNDICATED LENDING
Deal Flow Slows As Deal Size Grows in August
Syndicated loan volume in the
Asia-Pacific region outside Japan
dropped 46 percent to $16.7 billion in
August compared with the same period a
year earlier as deal-flow slows, according
to data compiled by Bloomberg.
Average deal size in the region was
$341 million in August, Bloomberg data
show. That compared with $329 million in
the same period of last year. Alibaba
Group Holding Ltd., which is expected to
raise as much as $20 billion in its U.S.
IPO, completed the biggest loan in the
region this month with a $3 billion
revolver, the data show.
Average interest margins charged for
U.S. dollar-denominated loans shrank to
230 basis points at the end of August,
compared with 266 basis points at the
end of 2013, the data show.
Leading the league tables year to date
is State Bank of India with a 9.8 percent
market share, followed by ANZ at 6.7
percent and HSBC at 5 percent. Bank of
China is next with a 4.8 percent market
share while National Australia Bank takes
the fifth spot with 4.5 percent.
Asia-Pacific ex-Japan 2014
Asia-YTD MLA Ranking
MARKET
RANKING BANKS
SHARE (%)
1 State Bank of India 0.098
2 ANZ Banking Group 0.067
3 HSBC Bank PLC 0.05
4 Bank of China 0.048
National Australia Bank
5
0.045
Ltd
Commonwealth Bank
6
0.042
Australia
7 Westpac Banking 0.041
Sumitomo Mitsui
8
0.034
Financial Group Inc
Standard Chartered
9
0.032
Bank
10 Mitsubishi UFJ Financial 0.029
Deal Type Comparison
USD Bln in
2014
2013
2014
%
%
Domestic
$174.68 57.2% 56.8%
Currency
Refinance
$102.83 33.7% 42.1%
Purpose
Club Deals $98.21 32.1% 29.4%
All data from the Bloomberg Asia-Pacific
Syndicated Loans team
HEDGE ACCOUNTING Pac Ex Japan Syndicated Loans Volume
Top Deals in 2014 YTD by Country
COUNTRY BORROWER DATE AMOUNT (Mln)
Australia Roy Hill Iron Ore Project Mar-14 USD 7,600
China Cnooc Jun-14 USD 1,500
Hong Kong Hongkong Electric Jan-14 HKD 37,000
India Abg Shipyard Mar-14 INR 160,408
Indonesia Trans Retail Mar-14 USD 1,275
Korea Youngchun-Sangju Highway Jun-14 KRW 1,430,000
Malaysia Sapurakencana Tmc Mar-14 USD 5,500
Singapore Oversea Chinese Banking Mar-14 HKD 38,712
Taiwan Chunghwa Picture Tubes May-14 TWD 22,800
Thailand Cp All Mar-14 THB 81,900
Philippines Pagbilao Expansion Project May-14 PHP 33,309

9. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 9
HEDGE ACCOUNTING BY EVA DE LEON, BLOOMBERG CORPORATE TREASURY SPECIALIST
Closing the Gap Between Risk Management and Hedge Accounting
After five years and more than 1,000
hedge item. A company could issue a
comment letters from stakeholders, IFRS
fixed-rate foreign currency (FCY) bond
9 is now complete. The new Financial
and correspondingly enter into a
Instruments Accounting Standard is a
fixed-floating cross currency interest rate
major overhaul of its predecessor, IAS 39,
swap (CCIRS), converting it to functional
often viewed as too stringent and not
currency. This is designated a fair value
aligned to risk management.
hedge. The company could then decide to
In June, Patricia McConnell, a board
lock in the interest rate by entering into a
member of the International Accounting
floating-fixed interest rate swap (IRS),
Standards Board, wrote: “The new hedge
converting the interest rate exposure to a
accounting model more closely aligns
fixed rate. IAS 39 doesn't allow combining
accounting for hedging activities with a
the FCY bond and the CCIRS trade as an
company’s risk management strategies,
underlying floating rate
and provides improved information about
exposure, so the second derivative
those strategies.”
(floating-fixed IRS) cannot be designated
Under IAS 39 rules, certain hedging
as a hedge and must be accounted for in
strategies considered as true economic
earnings.
hedges did not qualify for hedge
Restrictions on designating the full fair
accounting. There were inconsistencies
value of purchased options (only the
or biases with the qualifying criteria for
intrinsic value applied) for hedge
certain "hedgeable" risks. For example, it
accounting purposes dissuaded a number
restricted hedging the components of a
of corporates from using option-based
non-financial item while allowing it for
strategies.
financial items — significant for
IFRS 9 has addressed these and other
corporates that hedge their commodity
limitations and is seen as a significant
exposure.
lessening of the gap between hedge
In addition, certain strategies are
accounting and risk management
precluded as IAS 39 does not allow a
practices. The new standard broadened
derivative to form part of the underlying
the scope on eligible hedged items, so
more types of strategies can qualify for
hedge accounting. For example,
component hedging is now possible, so
manufacturing companies and airlines
can hedge their commodity risk exposure.
The removal of the bright-line test is
good news; it doesn't fully eliminate the
need to quantify and monitor a company’s
risk management activity and its
effectiveness. It introduced the concept of
setting a ‘hedge ratio’ and an assessment
that the effect of credit risk does not
dominate the change in value. It does
allow companies a more flexible approach
on how to assess the effectiveness of
their hedges, in line with their risk
management program. There is still the
requirement to prove the credit risk
assessment quantitatively in certain
cases.
Overall, IFRS 9 provides relief to
corporates on hedge accounting as it
covers more scenarios and allows
accounting treatment that best reflects the
economic reality of their risk management
activities. The changes could drive
corporates to hedge more or broaden the
types of instruments used.
Key Highlights of Changes to IAS 39
IAS 39 IFRS 9 COMMENTS EXAMPLES
‘Bright-line’
test
Requires both
prospective and
retrospective
tests.
Effectiveness
threshold of
80-125%.
Only requires
prospective
test. Removes
bright line test
of 80-125%.
Considered a relaxation of rules as
more strategies can qualify. Other
criteria do need to be considered,
such as ensuring that credit risk
does not dominate fair value
changes, and setting the hedge ratio.
A company could designate an IRS with the critical terms matching those of the
underlying bond. Prospective assessment could be qualitative. If the IRS
counterparty’s credit standing has deteriorated, the company would need to quantify if
credit risk becomes dominant in the fair value changes and assess if the hedge
designation will be discontinued.
Component
hedging
Not allowed.
Allowed or
eligible as
hedged
item/s.
More hedging strategies can now
apply hedge accounting, primarily for
commodity hedges.
Manufacturing companies can now readily apply hedge accounting for their
commodity purchases such as coffee and soybeans
Aggregated
exposures
Combining an
exposure and a
derivative is not
allowed.
Combined
basis can be
an eligible
hedge item.
Allows companies to apply hedge
accounting using a combination of a
derivative and non-derivative.
IFRS 9 allows a combined derivative and non-derivative to be assessed as a
combined exposure. For example, a company can issue a fixed rate bond and enter
into a fixed-to-floating swap and these two trades can be combined to create an
aggregated exposure of a floating-rate bond.
Time value
of options
When intrinsic
value of an
option is
designated, the
time value
component is
accounted for in
earnings
Considers
time value as
part of cost of
hedging.
Allows
amortization
or deferral to
OCI
Lessens accounting mismatch or
volatility for option-based hedging.
A company would need to consider if the hedge is transaction- or time period-related,
which determines how the time value component is accounted. For example, the
company enters into an FX collar to hedge its foreign currency exposure due to a
future purchase of inventory. This is considered transaction-related under IFRS 9. As
such, the time value component is deferred in OCI and reclassified in earnings once
the underlying transaction occurs.
Source: Bloomberg
FOCUS: COMMUNICATIONS INDUSTRY WORKING CAPITAL

10. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 10
FOCUS: COMMUNICATIONS INDUSTRY WORKING CAPITAL
The advertising revenue rebound since
2010 has substantially boosted the
operating and free cash flow of media
companies, enhancing their liquidities.
Media companies historically generate
positive working capital as there is very
little inventory and the cash turnover cycle
is quite short. They have high operating
leverage and minimal capital spending.
Telecom companies have greater
working capital needs and more
substantial capital spending relative to
other communications sectors.
— Paul Sweeney, U.S. Director of Research,
Media, Entertainment and Internet,
Bloomberg Intelligence
Ranking Breakdowns
By Number of Companies
By Revenue
By Number of Companies,
Region
The rankings are derived from the largest 980
public and private companies, by market
capitalization, according to the BICS classification
for communications. All company accounts were
converted to IFRS or U.S. GAAP for consistency.
Some companies do not report all data or years.
Working Capital/Sales by Sub-Sector
Free Cash Flow/Sales by Sub-Sector
FOCUS: COMMUNICATIONS INDUSTRY FUNDING (ASIA)

11. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 11
FOCUS: COMMUNICATIONS INDUSTRY FUNDING (ASIA)
Companies have preferred to access
funds through lending, instead of bond,
markets. Japanese corporates were the
largest borrowers, and yen the most used
currency. Australia and India corporates
regularly use this market for funding, too.
The 2014 run rate suggests this year
will see local bond issuance outstrip
syndicated lending, driven in large part by
Chinese corporates' issuance.
Bond issuance tends to be more
common in countries with larger, liquid
bond markets, of which Japan, Australia
and Korea have been the largest.
Lending by Currency
CURRENCY
MARKET
SHARE (%)
ISSUES
LOAN
TRANCHE
SIZE (Mln)
JPY 35.57 69 $62,443
USD 16.28 149 $28,569
INR 13.48 39 $23,658
AUD 10.03 64 $17,602
NZD 4.10 18 $7,191
IDR 3.40 46 $5,964
HKD 3.30 14 $5,800
THB 2.93 17 $5,139
SKW 2.87 65 $5,040
SGD 2.46 6 $4,318
MYR 1.97 12 $3,451
TWD 1.70 21 $2,988
PHP 0.91 35 $1,591
CNR 0.35 11 $621
Source: Bloomberg
Bond Issuance by Currency
CURRENCY
MARKET
SHARE (%)
ISSUES
AMT
OUTSTANDING
(Mln)
JPY 26.19 57 $24,343
USD 24.35 45 $22,627
CNR 12.92 78 $12,004
SKW 10.78 267 $10,015
EUR
8.38 9 $7,788
INR 3.79 40 $3,518
AUD 2.71 9 $2,522
THB 2.20 27 $2,045
MYR 1.89 34 $1,756
TWD 1.31 13 $1,216
PHP 1.20 19 $1,111
IDR 0.96 11 $890
SGD 0.93 4 $863
HKD 0.72 12 $671
Source: Bloomberg
BANK RANKINGS Communications Sector Borrowing by Country
Communications Sector Bond Issuance by Country
N.B. The Communications sector is classified as Cable & Satellite, Entertainment, Media
(Non-Cable), Wireless Telecoms Services and Wireline Telecoms Services. Analysis is of
Asia-based corporates, including local companies and local subsidiaries of multinational
companies.

12. Sept. 10, 2014 Bloomberg Brief Asia Corporate Treasury 12
BANK RANKINGS BY SHAN ANWAR, BLOOMBERG CORPORATE TREASURY SPECIALIST
Bloomberg Ranking of Main Corporate Treasury Banks' Financial Strength
Bloomberg created an overall score of major players in transaction banking and treasury services based on seven numerical indicators.
Credit and liquidity measures each comprise 40 percent of the score. Performance metrics comprise 20 percent. The list is filtered for
major players in transaction banking/corporate treasury services. Each bank is ranked from best to worst. Data is as of Sept. 9, 2014.
Notes:
1) Bloomberg default risk scale: Rates from Investment Grade (IG) to High Yield (HY) based on default probability. See DRSK<GO> for more information.
2) Day 1 CVA Charge: Credit Valuation Adjustment is calculation of a 5-year pay float — receive fixed $100 Mln interest rate swap on Sept. 3, 2014.
3) Excess Tier 1 Capital Ratio: The amount of the Bank's tier 1 capital ratio above the Basel requirement of 6 percent.
Swaps Rule Requires $644 Billion in Collateral, Regulator Says
BY SILLA BRUSH AND JESSE HAMILTON
U.S. banks would need $644 billion in collateral to offset risks
in swaps traded among themselves, according to an analysis of
rules re-proposed by regulators.
The Office of the Comptroller of the Currency laid out estimated
costs for companies including JPMorgan Chase & Co., Bank of
America Corp. and Citigroup Inc. to support trades that won’t be
guaranteed by clearinghouses.
Under revised rules for non-cleared swaps issued by the OCC,
Federal Reserve and Federal Deposit Insurance Corp., banks
would have to finance collateral and hold it in custody accounts
that may be less profitable than other uses. As a result, OCC
economists estimate the requirement will cost the banking
industry between $2.9 billion and $6.4 billion annually once the
rules are fully in place in 2019.
U.S. banks and their clients would need to have about $300
billion in initial margin to offset risks in the trades, according to
industry and regulator estimates cited by the Fed.
U.S. and overseas regulators have sought to increase
oversight of the $710 trillion global swaps market since largely
unregulated trades helped fuel the 2008 credit crisis and forced a
bailout of American International Group Inc. For swaps that
remain non-cleared and traded directly between buyers and
sellers, regulators have proposed standards for requiring banks
and their clients to exchange collateral to prevent risks from
building up in the market.
The nine national banks and six foreign-bank branches affected
by the proposal would face about $659 million in administrative
costs to get the system up and running, and another $149 million
a year to comply with the rule, according to the estimate.
Bloomberg Brief: Asia Corporate Treasury
Ted Merz
Jennifer Rossa
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