Liquidity Action Checklist

Liquidity Action Checklist

Call date: 26th March 2020

We ran two Treasury Peer Calls, covering Asia, EU, Middle East & U.S. on how companies are managing their liquidity in the current (CV19) crisis.

The call was chaired by Damian Glendinning, whose commentary appears below.

If you would like a copy of this report, please get in touch.

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Chairman’s commentary

We had two good sessions, covering Asia, Europe and the Americas. My thanks to everyone for their lively participation – and best wishes to all participants, their families and their teams for a healthy outcome to this crisis. 

While varying concerns were expressed, most teams seemed to be coping well with the crisis:

Business continuity plans have been implemented, and are generally working satisfactorily. All participants were working from home. Some were experiencing bandwidth issues, and were concerned about the transmission of large files with quarter- and year-end closings. No-one has found this to be a showstopper. 

Generally, cash rich companies had fewer issues than highly leveraged ones, though one cash rich participant was unhappy that interest rate reductions had reduced the return on cash deposits. Many participants were finding that some countries were experiencing greater difficulties than others, requiring specific solutions. Unsurprisingly, Latin America figures on the list of complex places to operate.

Some participants were drawing down on their committed (and uncommitted) facilities, even where there was no immediate problem, simply to ensure access to cash. While some banks have indicated that they would prefer it if facilities were not drawn down, the support to date from banks seems to be good. However, some participants are checking their banking agreements to make sure banks cannot invoke material adverse changes clauses (none have, so far).

Many participants are worried about cash flow, as production and sales slow. Those in the most badly affected industries are looking at which payments to withhold to conserve cash.

Government help:

One participant had accessed government backed funding in the UK (via Santander): the process was simple and the one string attached was that the cash must remain in the UK. 

One participant had tried to access government sponsored funding in Germany, but found they already needed to be a customer of a local bank for this to work. 

One had tried to access aid in a different country, but found they needed to declare themselves to be in financial difficulty to do so. This is not the case. 

Another participant found that the Japanese parent could access government supported funding in Japan, but not elsewhere. This meant they were having to make intercompany loans to countries where this was not their normal practice, with all the attendant regulatory and tax issues. 

One participant had tried to access government help for payments to employees who have been laid off. They found the employees needed to be totally laid off, with zero activity, for this to work – in fact, they are now working part time.

One participant is looking at tax and VAT deferrals in some European countries, where delays are also available for paying social security contributions.

Some participants were looking to issue bonds or commercial paper to take advantage of the corporate bond purchase programmes being implemented by the central banks. It seems both the Fed and the ECB are buying corporate bonds in the primary market, but they generally need an investment grade rating.

Some participants are experiencing difficulties accessing liquidity in the FX market for some of the more exotic currencies. These include BRL, but also places like Jordan and Honduras, where some banks have stopped quoting prices in FxAll.

Many participants were finding cash forecasting even more difficult than usual – several are updating forecasts daily or even more frequently, with multiple scenarios.

Several participants found the crisis had been useful, in terms of receiving a higher priority than usual for treasury projects (including implementing a real-time cash reporting IT system), while another had found the CFO and CFO had a new appreciation of the importance of banking relations. 

There was concern about payments in India being stopped due to the paper based nature of the system. Some participants have used the situation to increase the use of electronic signatures, though some markets, such as Nigeria and South Africa, remain difficult for this. One participant has even managed to use the situation to reduce the use of cheques in the United States – could we finally see the US join the modern electronic world in this respect?

Customer credit is a significant concern, as is bank counterparty risk. Many participants are carefully watching the health of their banks.

Some of the cash rich participants are using their financial health to provide assistance to their customers by extending payment terms. Some are also increasing inventory, as a buffer against potential future plant shutdowns. On the other hand, one distributor of products made by a major manufacturer has been instructed not to expect help from the manufacturer.

There is some pressure on pricing, as spreads on FX and loans widen. At the same time, reductions in interest rates are softening the impact.

Bottom line: our contributors are coping, with a series of challenges, which vary by country and industry, as well as leverage. We all very much hope this continues – but we might need to give some thought to what happens if the crisis is extended beyond the next month or two.

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