Supply chain financing firmly on the agenda of Asian treasurers

ESG treasury solutions highlight market progress at The Triple A Treasury, Trade, Supply Chain and Risk Management Awards 2018

A few years ago, a bank’s discussion with a client seeking to secure financing was just about selling its receivables. Now, the discussion is much more embedded in the strategy of the clients and how banks can help them develop their business to support their ecosystem with their suppliers or buyers.

Supply chain financing is very much on the agenda of treasurers, based on The Asset engagement with several clients during the evaluation process for The Triple A Treasury, Trade, Supply Chain and Risk Management Awards 2018. It offers highly flexible solutions that help address a lot of their pain points. It provides a working capital optimization as it frees up working capital without raising additional bank debt and therefore does not impact on gearing.

Supply chain financing helps accelerates the conversion of receivables into cash and thus shorten days’ sales outstanding, resulting in improved liquidity. Moreover, it offers longer payment terms at attractive financing rates to buyers.

One of the corporates that is increasingly relying on supply chain financing is Huawei, a leading Chinese global information and communications technology solutions provider. Several banks are working with the group to implement solutions involving, among others, a long-term accounts receivable purchase facility as well as extending financing to buyers to support their orders to Huawei. Another solution was a payable finance programme that fills the off-balance sheet requirement of the suppliers.

Supply chain financing is now becoming a part of the conversation relating to environmental, social and governance (ESG) initiatives. This comes as corporates are focusing on responsible sourcing and are asking their suppliers to follow their sustainability objectives. Banks, on the other hand, are prepared to help their clients provide financing incentives to their suppliers. Banks also create partnerships with some institutions which focus on corporate social responsibility (CSR).

It is still a challenge to bring the ESG discussion forward as financing and improving liquidity are the major priorities for treasurers. However, the fact that they are open to the idea, as the bankers point out, is already an accomplishment and should help pave the way for further discussions.

One company that already adopts ESG initiatives is Pimkie, which secured a 20-million-euro (US$24.70 million) sustainable supplier financing programme to incentivize suppliers to improve their CSR practices. A retailer specializing in daily life ready-to-wear clothing for trendy women, the company adopts a solution which offers each supplier the possibility of access to cheaper financing if it is willing to improve its CSR practices.

Given the strong financial incentives, it is anticipated that suppliers will enhance their CSR practices. Pimkie, on the other hand, follows a dynamic process and will continue to regularly review the CSR performance of its suppliers.

The winning ESG solutions this year are also designed for a number of renewable energy projects, such as that for Fotowatio Renewable Ventures, whose equity standby letter of credit allows the company to support its operation.

The supply chain finance solution for Gamesa Renewable Power Private Limited enables the company to meet its working capital mismatch requirement by extending the accounts payable terms. Rising Bhadla 2 and SE Solar are the two renewable energy projects worthy of the Best ESG solutions this year.

In addition to standout ESG treasury solutions there has been a noticeable shift of Asian-based corporates looking to enhance their internal operations to be the leading companies of tomorrow.

Moreover, up-and-coming companies such as Kerry Logistics and Grab are working with their respective banking partners in ensuring liquidity in automation of their everyday processes. The case of Kerry Logistics saw the establishment of a multi-currency notional pool. These Asian champions are just the tip of the iceberg when it comes to emerging corporations looking to internationalize their systems and processes.

Even SMEs (small medium enterprises) are ambitious when it comes to improving their treasury processes. Tunglok Group in Singapore, for instance, was steadfast in its mission to simplify the group’s account structure and optimize its working capital. Likewise, PayAsia received a boost in its operations when it leveraged on virtual accounts to give the company extra visibility.

The TMT (telecom, media technology) sector was the site of many landmark solutions this review period with banks targeting to ride the opportunistic wave of these new economy companies. Lianlian Pay, for example, was one of the many companies benefiting from this focus by being able to create an efficient FX risk management solution. This is just a small sample of solutions honoured by The Asset during this review period.

For full lists of winners, please see below:

Winning Asian champion solutions, please click here.

Winning ESG solutions, please click here.

Winning SME solutions, please click here.

Winning solutions by industry, please click here.

The Asset is hosting the 4th Asia Treasury & Trade Summit in April. For more information please click here.