Photo of Martin Scott, HSBC, Anita Prasad, Rahul Daswani and Taru Rintamaki, Microsoft.
This demonstrates the company’s opportunistic approach to leverage the recent oil price collapse. They have identified Saudi Arabia, Kuwait, Qatar and the UAE as the specific countries requiring a financing solution and are implementing a solution with one of their global partner banks (GPB) which will buy receivables on a non-recourse basis.
Structured Finance Manager
General Manager, Treasury Capital Management
Director, Structured Finance
Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realise their full potential.
in partnership with
The Middle East is a region in transition, underpinned by the recent drop in oil prices which has seen those countries dominated by oil look to diversify their economies. And this is having both a positive and negative impact on businesses.
For Microsoft, whose business in the region is dominated by sales to the public sector and governments, this poses an interesting paradox. On the one hand, governments in the region are focusing on digitisation in order to raise productivity in the enterprise sector, which offers growth potential to Microsoft. Yet on the other, there are significant challenges that Microsoft needed to deal with in the present, as governments reduce spending and re-prioritise projects, often resulting in delayed payments to Microsoft’s partners who sell on behalf of the company in the Middle East. This of course impacts the ability of the partners to pay Microsoft in good time and can also lead to the cancellation of new orders.
Whilst there were some obvious ways to solve this, such as bank financing and credit insurance, these all had downsides – namely cost and availability due to the ‘high risk’ nature of the markets. “But, without our partners having adequate funding in place it was clear that credit limit capacity would constrain our ability to grow sales in these markets,” says Anita Prasad, General Manager, Treasury Capital Management at Microsoft.
It was identified that Saudi Arabia, Kuwait, Qatar and UAE were countries that were most in need of financing and a solution was conceptualised with the following elements:
Payment term extensions for invoices related to licensing to large public sector entities, extended to the partner.
Selling down longer payment term receivables to a bank on a non-recourse basis so that Microsoft can remove the invoices from its books.
Disclosing the transaction to the partner.
The partner continuing to be responsible for collection from the public sector entities.
Once the solution was conceptualised, the next step was to identify a bank which could buy the receivables. Given that Microsoft’s partners in the region are software companies, with little fixed assets on their balance sheets and that the public sector business is characterised by ‘lumpy’ deals, requiring sizable credit limits, not every bank would have the appetite.
HSBC, a global partner bank of Microsoft, was ultimately selected after the team negotiated a deal which would see the bank buy the receivables with 100% non-recourse to Microsoft – HSBC would use syndicated credit insurance to manage their own credit risk. To speed up the process Microsoft co-operated with HSBC to complete their due diligence on credit risk and documented the end-to-end process.