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I am deputy editor at The Banker, a Financial Times publication. I joined the magazine in August 2015 as transaction banking and technology editor, which remain the beats I cover. Previously I was features editor at Profit & Loss, an FX and derivatives publication and events company. Before that I was editorial director of Treasury Today following a period as editor of gtnews.com. I also worked on Banking Technology, Computer Weekly, and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Friday, 20 April 2012

Regulations, Corporate Cash and Funding

 20 Apr 2012

The final day of the Association of Corporate Treasurer's (ACT) 2012 conference, which attracted more than 700 participants, ended with hard-nosed newsman Jeremy Paxman hosting a session of 'Question Time'. The panel of industry experts received a grilling, as questions flooded in from the audience. Earlier in the day, Paul Tucker, deputy governor, financial stability, Bank of England (BoE), addressed some concerns regarding the UK credit market.

The ACT Annual Conference in Liverpool came to a close on Wednesday 18 April 2012 with a corporate treasury version of ‘Question Time’, hosted by Jeremy Paxman, a presenter on BBC Two's Newsnight programme. The panellists, which included Peter Hahn from the Cass Business School, Matthew Hurn from the Mubadala Development Company, Heather Rabbatts (media advisor), and Trevor Williams from Lloyds, faced tough questions from the audience regarding the eurozone and the UK’s relationship with its biggest trade partner, as well as whether the government could truly ‘rebalance’ the economy.

In a similar vein to Hamish McRae’s comments in the opening plenary on the first day, Hurn provocatively predicted that the eurozone would not be around in 10 years’ time. Williams disagreed but added that the composition may change and it may not be the same 17 countries that it is today.

The last day opened with a keynote speech by Paul Tucker, deputy governor, financial stability, Bank of England (BoE), which focused more on the UK’s economic predicament. He talked about the effects low interest rates and quantitative easing (QE) have had on the real economy, as well as the new Financial Policy Committee’s (FPC) mandate. He said that the FPC wants the power to be able to increase the capital banks need to put aside, but this would not be a popular suggestion. “We will not micro-manage the banking industry, but we need to ensure stability and the resilience of the financial system, while not threatening the growth of the economy,” he argued. He emphasised the need to keep inflation low, and is committed to reducing it to 2%, from the 3.5% it is at today after falling from 5.2% in September.

Tucker said that the UK growth figures for February saw a gradual pick up as the global economy recovers, and the big picture will show this trend but that it won’t look like this all the time. He identified two factors that will muddy the water over the next quarter:
  1. Weak figures in the construction sector.
  2. The Queen’s Diamond Jubilee holiday, which reduces the total number of days worked.
The Office for National Statistics (ONS) predicts that the UK headline growth figures are likely to be weak or flat.

When asked by an audience member whether the BoE will implement another round of QE or use other measures to help the UK recovery, Tucker said that whichever monetary instruments are used, the main aim is to address inflation in the medium term. “The path back to a 2% inflation target is slightly harder than we thought three months ago,” he admitted.

The Treasurer’s Hunt for Funding

A main focus of the conference was not only what to do with the piles of cash that corporates are hoarding, but also how to secure credit lines and funding for those corporates that are not cash rich. The session entitled ‘The Treasurer’s Hunt for Funding’ looked at two case studies from very different corporate sectors.

Andrew Kluth, group head of funding, National Grid, led off by talking about how an indebted utility, with too much sterling debt, opened up to the retail investor sector for a euro medium-term note programme (EMTN). The utility achieved:
  • Diversification from institutions.
  • New investor base.
  • Less sensitivity to market conditions.
  • Different focus: absolute rate versus spread (and the tyranny of benchmarks).
  • Addressed demand for inflation-linked assets.
The result was the utiliy raised US$260m, which subsequently rose to US$275.5m and again to US$282.5m. Now it has approximately 10,000 retail investors.

The second case study was presented by David Peters, treasurer, Grosvenor Group, which is an international property development company associated with the Duke of Westminster, with £12bn of assets under management. The group’s financing needs were long-term and needed to support development projects outside the UK.

Grosvenor manages direct debt, as it is a non-rated entity and wants to stay non-rated because its name is stronger than its rating would be. Grosvenor’s indirect debt was focused on the bank market and also securities. It has 132 facilities, 38 lenders and £2bn in derivatives. Therefore, its sources of finance were bank lending for long-term needs, capital markets for short-term needs and insurance companies.

Peters advice to other corporate treasurers working with bank lenders is to work out a return on capital (ROC) for each provider and co-ordinate all group activities. He believes that Grosvenor achieved:
  • Closer relationships with its banks.
  • Greater understanding of its own business.
  • A successful private placement transaction in terms of pricing and good covenant package.

Conclusion

The ACT conference’s main themes tackled the issues corporates are facing worldwide: new regulations such as Basel III, making corporate cash work in times of historically low interest rates and returns, risk management, and doing business in emerging markets such as China and India.

One regulatory issue that got next to no attention at the conference was the upcoming deadline for the migration to single euro payments area (SEPA) Credit Transfers (SCTs) and Direct Debits (SDDs). The deadline is 1 February 2014, although for those countries that do not have the single currency the deadline is 30 October 2016. This could be the reason why UK corporate treasurers do not have this at the top of their agenda and are waiting to see how it plays out in the eurozone.

The Association of Corporate Treasurers (ACT) Annual Conference 2012, held in Liverpool 16-18 April 2012, attracted more than 700 delegates, with corporate treasurers making up approximately 45% of attendees. 

First published on www.gtnews.com 

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