Treasury Today Country Profiles in association with Citi

CIMIC Group Ltd

CIMIC Group Ltd, Highly Commended, Best Trade Solution

Mark Evans, ANZ and Scott McAlpine, CIMIC Group Limited

The solution showcased in this case study is a receivables financing facility implemented initially across ten of the CIMIC Group’s strategic debtors with the opportunity to add mutually acceptable debtors over time. The solution highlights the requirement to recognise the knowledge of the industry in which this company operates.

Photo of Mark Evans, ANZ and Scott McAlpine, CIMIC Group Limited.

Scott McAlpine

Executive General Manager Treasury

CIMIC Group Limited is an ASX listed international construction and project management company, and the world’s largest contract miner. CIMIC provides construction, mining, mineral processing, engineering, concessions, and operation and maintenance services to the infrastructure, resources and property markets.

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The requirement

Following a change in management in 2014, CIMIC undertook a strategic review of its business. A key objective coming out of the review was to strengthen the balance sheet and to improve cash backed profit. In order to reduce working capital employed in the business and improve the cash conversion cycle, CIMIC wanted to implement a receivables finance programme.

CIMIC wanted a working capital solution that allowed banks to purchase receivables relating to specific debtors on a true sale basis and to transact on an ‘undisclosed’ arrangement to debtors. The challenge CIMIC faced was an acute knowledge gap in the banking industry on how to deal with the complex contracts in the construction and contract mining industry.

The problem

How many banks have told you they can do receivables finance? And that the structure is non-recourse? Most banks do receivables finance and some clients achieve off balance sheet accounting treatment. However in CIMIC’s experience, their auditors wouldn’t allow off balance sheet accounting treatment with a facility structure that included commercial dispute as one of the limited recourse events. Further, CIMIC preferred to transact on an undisclosed basis, meaning the company’s clients facilitated payment of the invoice into CIMIC’s bank account (as opposed to being paid directly to the bank).

The solution

CIMIC negotiated a receivables finance agreement that was bespoke and scalable with one bank. This evolved into CIMIC developing its own standard receivables finance agreement that could be implemented with other banks.

The initial receivables finance facility, for around AU$250m, was implemented for more than ten strategic debtors across the CIMIC Group. CIMIC could add mutually acceptable debtors as the programme grew over time, to be between AU$300m-AU$400m.

Scott McAlpine, Executive General Manager Treasury says, “The programme strengthened our working capital position by reducing capital employed, improving cash conversion and releasing working capital into the business. It was a lower cost of capital and alternate source of funding that assisted management to shape the thinking inside our organisation to focus on cash and cash returns in line with our strategic review.”

The solution resulted in the creation of a bespoke facility agreement tailored to meet the company’s business drivers and mitigate the risks specific to the industry’s operational process and standards. Strong collaboration between the bank and CIMIC’s specialist staff and legal experts, resulted in a legal document that can be rolled out across CIMIC’s subsidiaries in multiple geographies with only local law changes required (eg Hong Kong, Singapore, New Zealand, Canada and Botswana). This enables the receivables finance solution to be easily scalable in order to capture group-wide working capital and cash flow benefits in the future.

Best practice and innovation

The structure showcases an in-depth knowledge of the construction and contract mining industry, particularly around its payment certification process prevalent in the industry. By having specialist expertise that governed ‘true sale’ perfection and industry specific legislation in Australia, the solution addressed issues around assignability, risk of commercial dispute and dilutions in a way that is commercially viable for CIMIC, the bank and the auditors.

Moving forward, the facility structure will assist in shaping the standard parameters in the underlying project construction contracts to expand the application of receivables financing in the industry.

McAlpine concludes: “The legal negotiations ensured the solution catered for CIMIC’s industry nuances, and CIMIC’s balance sheet goals. In particular, specialist knowledge was used to commercially apply the legislative changes to a receivables finance facility to create a bespoke document that is commercially viable. Receivables finance can now be considered a practical alternative way for companies in the industry to improve working capital and cash flow returns in a cost effective way.”

Key benefits

  • Addresses bespoke risks and concerns of industry.

  • Reflects a combination of superior product and legal capability.

  • Potential to re-contextualise the traditional views of receivables financing in the industry.

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