Photo of Andreas Hartmann, SAP.

The mandate for SAP Global Treasury is to support the underlying operational business by having cash available at very short notice and ensuring that no default of counterparties or investments affects the operational liquidity or the strategic flexibility of the company.

To cope with these requirements and the current financial market environment, SAP’s global treasury broadened its investment scope and developed a four pillar strategy consisting of term deposits, money market fund (MMF) investments, German T-bills and tri-party repo transactions. “For MMF investments, SAP is currently focusing on euro denominated government funds with AAA ratings and a stable net asset value (NAV),” explains Andreas Hartmann. “The purchased Bubills are transferred into our security account at Finanzagentur der Bundesrepublik Deutschland.”

The majority of SAP’s excess liquidity was, however, invested in term deposits with its core banks. Although the company had no doubt about the credit quality of these institutions, term deposits created a bulk risk, which the company wanted to reduce. In April 2011, Barclays introduced the tri-party repo, which is essentially a collateralised term deposit managed by an independent third-party agent. Following an initial internal review, SAP Global Treasury was impressed by the potential diversification benefits and the company decided to go ahead with the process proposed by Barclays.

“In all the discussions, prior to our partnership, we found the bank very supportive in addressing any questions around the tri-party repo process as well as solving specific withholding tax, legal, and accounting related issues,” says Hartmann. At the same time, SAP colleagues in the tax, legal, IFRS and German GAAP accounting departments also helped out. “Given the lean and highly automated approach we have towards treasury at SAP, it is imperative that any new instruments or processes do not create a substantial additional manual workload for the department,” Hartmann explains. “With the tri-party repo, SAP was able to achieve its goal of straightthrough processing in all areas of global treasury. Greater automation means less manual input is required from the team.”

To support this approach, the company introduced the tri-party repo to the SAP treasury management and ERP system. The implementation of this tool – which substantially increases flexibility regarding short-term investment decisions while creating benefits for all parties involved – has completed the fourth pillar of SAP’s cash investment strategy. Says Hartmann: “The solution illustrates the benefits of a corporation teaming up with a bank which ‘knows its customer’ and is able to provide expertise and tailor-made solutions in the context of corporate risk and liquidity management.”

With the approval of its Treasury Committee, SAP opened an account at Clearstream settlement facility in the weeks following the adoption of the new investment tool. This was to ensure smooth handling of the related transaction as a key safety element of the tri-party repo is that both parties to the repo must have cash and collateral accounts at the same tri-party agent. SAP defined bonds of selected non-financial corporations as eligible collateral for this account, resulting in the intended diversification benefits for their portfolio to reduce sovereign and financial institutions risks. Together with its internal stakeholders and Barclays, SAP agreed on and entered into the German global master repurchase agreement (GMRA). Furthermore, the relevant forms, (confirmation) processes and the related SAP standard documentation were established as part of this agreement. The successful project has helped SAP Global Treasury to implement standard documentation, including annex and forms which are now also in use with other tri-party repo core banks, thereby supporting standardisation and scalability.