Subsidiary Financing Options Taxes Swedcham 15 04 2010

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The objective of our presentation about subsidiary financing is to kick-off an interesting discussion with you as represantatives of the Swedish industry in Brazil about this issue. The presentation includes the possible financing strategy from a company view, which is presented by Daniel Castro, Head of Treasury - Husqvarna Brazil.

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Subsidiary Financing Options Taxes Swedcham 15 04 2010

  1. 1. Subsidiary Financing - Options & Taxes Husqvarna Brazil - Financing Strategy Study Case Summary ■ Husqvarna brief presentation and history ■ Risk Management and Financial Policies ■ Financing Strategy ■ Cross Border Funding ■ Pricing Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 1
  2. 2. Subsidiary Financing - Options & Taxes Husqvarna brief presentation Net Sales 2009: SEK 34 billion (USD 5 billion) Nº of employees: 15.700 World wide presence: +100 countries Major brands: Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 2
  3. 3. Subsidiary Financing - Options & Taxes Timeline Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 3
  4. 4. Subsidiary Financing - Options & Taxes Timeline Spin Off Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 4
  5. 5. Subsidiary Financing - Options & Taxes Risk Management and Financial Policies ■ Liquidity • 2,5% of last 12 months rolling Net Sales • Excess liquidity in interest bearing instruments with high liquidity and with long term rating not below A- (S&P) ■ Borrowings • Long-term borrowings average maturity >2 years • Net Debt/EBITDA < 2,5 on a four quaterly rolling basis ■ Currency risk • Borrowing in foreign currency should be hedged to local currency • Transactional currency risk should be hedged as follow: • 75-100% of forecasted flows up 6 months • 50-75% of forecasted flows between 6-12 months ■ Interest rate risk • % of CDI, or another index in acordance with sales ■ Balance sheet risk • Benchmark equity for each company and currency is calculated on the basis of its total assets less financial assets Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 5
  6. 6. Subsidiary Financing - Options & Taxes Risk Management and Financial Policies ■ Financial counterparty risk • Long term rating not below A- (S&P) ■ Credit risk and Bank relations • Meet all the different requirements ■ Operational risk • Treasury shall stipulate routines and regulations to minimize financial related operational risks within respective areas Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 6
  7. 7. Subsidiary Financing - Options & Taxes Financing Strategy Since the spin off Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 7
  8. 8. Subsidiary Financing - Options & Taxes Intercompany Loan in USD or Cross Border Funding According to Double Taxation Treaty between Sweden & Brazil, Matching 6. +15% Credit in Sweden = 15 % of Interest Interest Swedish Tax Expenses Authorities 4. = 85% Interest Husqvarna + Tax receipts 5. Tax receipts 3. Customs Sweden - 15% of Brazil Interest Brazil 1. MUSD Loan 2. 100% Husqvarna Withholding Tax in Brazil = Interest Brazil 15% of Interest Expenses Payment * Definition of Withholding Tax: Income tax withheld and accounted for by a borrower on interest payments to a non-resident lender. Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 8
  9. 9. Subsidiary Financing - Options & Taxes Pricing of intercompany loan / cross border funding One important point of the cross border funding is the hedge cost: USD spot x (1+idom)(n/252) Pre-fixed interest rate Curve USD Forward= (1+iint x n/360) LIBOR Curve Intercompany loan in USD: Interest rate in USD = WACCpc + Parent Company Margin Cross Border funding in USD: Interest rate in USD= LIBOR + Bank Margin Interest rate in BRL = interest rate in USD + hedge cost locally Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 9
  10. 10. Subsidiary Financing - Options & Taxes Non-convertible Currency Loans 1. 20 MBRL Loan Agreement with Customer Customer in Brazil 10 2. Day 1: Disbursement M in USD Equivalent 20 MBRL* 20 MBRL* US D* Amount Converted at Brazilian Central Bank Fix via Brazilian Bank & Treasury 10 M 3. Day 90, 180, 360 US (Maturity): BRL to USD D* Brazilian Conversion at Spot Bank = Day 1 Rate = Day 90, 180, 360 * 20 MBRL = 10 MUSD example based on USD:BRL = 1:2 conversion rate Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 10
  11. 11. Subsidiary Financing - Options & Taxes Thank you ! Daniel Brandão de Castro Phone: +55 (11) 2133-5074 Mobile: + 55 (11) 8963-2542 E-mail: daniel.castro@husqvarna.com.br Website: http://www.br.husqvarna.com Address: nº 1.400, Avenida Francisco Matarazzo Centro Empresarial Água Branca – CEP 05001-903 Torre Torino – 19º floor – São Paulo – SP – Brazil Husqvarna Brazil Financing Strategy Study Case – Daniel Castro – Financial Committee Swedcham – 15.04.2010 11

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