GE’s innovative way of easing transferral of its trade finance portfolio to multiple buyers during divestment
As part of the strategy to engage in US$20bn of dispositions and refocus on its core offerings, General Electric’s (GE) corporate treasury team had to identify a repeatable process for efficiently reducing the company’s off-balance sheet financial exposure. There was no comprehensive solution in the market to transfer a large trade finance portfolio to multiple buyers with various levels of M&A expertise. GE had to devise an action plan to ensure that the divested business units and buyers were empowered with sufficient understanding of the operational requirements needed to transfer a portfolio of GE’s magnitude, while minimising potential for commercial contract disruption.
GE implemented the digitally enabled Trade Finance Deal Programme (TFDP), sponsored by the company’s Global Trade Finance team, headed by Lynda McGoey. TFDP reduces and transfers GE’s off-balance sheet financial exposure using customisable deal playbooks, strategic partnerships and technical enhancements.
GE partnered with PwC’s Global Treasury Practice to incorporate digital technology as the backbone of TFDP. Using ALOC, GE’s proprietary automated e-auction trade finance platform, the teams incorporated advanced data enrichment and analytics tools, further automating the cleansing, parsing, and linking of multiple data sources across several global businesses. Combined with visualisation tools, it helps GE identify buyer/seller synergies, leading to cost reductions and expedited transfer timelines.
GE Corporate Treasury serves as the overall trade finance subject matter experts, providing a top down assessment of the contingent liability portfolio as well as an initial transfer strategy for the financial obligations. Buyers provide input on whether the assessment outlined by GE Corporate Treasury sufficiently aligns with their current and future operating models. Banks are pivotal to reconciling the financial instruments identified by GE Corporate Treasury and executing the instrument transfer. Business unit champions manage commercial customer relationships, having a thorough understanding of the project/contract pipeline and financial obligations.
Standardised deal playbooks, consisting of trade finance workplans, process flows, and best practices, ensure that strategic partners have a framework to properly execute the transition of the portfolio. Playbooks outline critical tasks, timelines, interdependencies, and process owners that must be considered for a given deal structure. They also provide guidance to the deal teams and buyers, highlighting the impact that change of ownership will have while maintaining overall business continuity.
Best practice and innovation
Data analytics and digital dashboards, tailored to each deal, provide leadership with increased visibility into the composition of the company’s trade finance portfolio and global footprint by business unit. Digital toolkits enable corporate treasury to work with business units and buyers to define a customised strategy ‘best-fit’ for each buyer, to transfer a portfolio of trade finance instruments at deal close.
The transfer of trade finance obligations is usually not viewed as a deal close priority and is often relegated to a post-close activity; this leaves significant financial risk, increased cost, and unnecessary administrative burden on GE, the banks, and the buyer of a business. TFDP addresses this problem head on by providing roadmaps, repeatable processes and digital tools to drive efficient execution and accountability across business units. GE is now able to transfer a large contingent liability portfolio while minimising risk and cost for both buyer and seller, preserving bank credit capacity, and sharing best practices across the board.
Reduced off-balance sheet financial exposure through adoption of repeatable trade finance deal toolkits.
Decreased deal-related contingent liability exposure on the parent company portfolio by 65%.
Consolidated the number of banking partners for to-be-divested businesses by 50%.
A reduction in annual bank fee payments by 23%.
Increased volume of instruments transferred at deal close by 30%.