How India’s IT giant HCL solved supplier counterparty risk with insurance solution
Published: Feb 2025
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HCL Technologies Ltd
Photo of Rangarajan Sathyanarayanan, HCL Technologies Ltd.
Vineet Sood
Head Treasury and Executive Vice President
HCL Technologies Limited is an Indian multinational information technology (IT) consulting company headquartered in Noida, India. Founded by Shiv Nadar, it was spun out in 1991 when HCL entered the software services business. The company has offices in 60 countries and over 220,000 employees.
The challenge
Indian’s HCL’s partnerships with SMEs represented a growing counterparty risk for the IT group.
HCL’s sales contracts with clients are bundled with service support and payment terms are spread over three years. This creates long-term AR in HCL’s books, leading to:
Counter-party risk – small-medium enterprises few of which are non-investment grade/cross-over credits expose HCL to counterparty risks.
Balance sheet management/impact on return on capital – capital blocked due to these long tenor AR negatively impacts the company’s return on capital employed (ROCE), a key performance indicator (KPI) for the board and the IT services industry at large.
Historically, HCL executed bilateral AR programmes with a bank that had credit appetite on the counterparty. However, this business segment consisted of small buyers with which none of the banks had direct limits.
The solution
HCL worked closely with Citi to structure a long-term insurance backed AR purchase programme for a tenor of three years. The structure provides 100% cover on a portfolio of high double-digit facility amounts comprising 100 small and medium buyer entities spread across the globe from the insurer. The bank also has a small first loss recourse from HCL.
HCL, the insurer and Citi worked closely to agree the discretionary credit limit structure which is acceptable to all counterparties.
HCL worked closely with Citi to finalise a portfolio of 100 buyer counterparties which was acceptable to the insurance syndicate.
Citi obtained credit insurance to cover buyer bankruptcy risk.
Portfolio AR had a ‘door-to-door’ tenor of around three years and average maturity of circa two years.
The portfolio approach under an insurance cover allowed inclusion of small and medium sized enterprises which do not have any insurance cover on a standalone basis.
This is a global first solution which has not previously been done by any bank and insurer. The insurance syndicate also had to devise a new policy language for this facility which sets a new global standard for such solutions.
(Norton Rose Fulbright and Atradius Insurance contributed to this solution.)
Best practice and innovation
There was no precedent nor standard template for this facility. HCL and Citi worked together extensively with the insurance company to create this solution. Citi utilised an insurance syndicate to achieve maximum coverage for the facility.
HCL was able to remove a large amount of receivables credit risk from its balance sheet thereby creating appetite to do more business with those counterparties. At the same time, this discounting also helped reduce their days’ sales outstanding (DSO), resulting in much higher control and visibility over liquidity.
Key benefits
Process efficiencies.
Risk mitigated.
Improved visibility.
Future-proof solution.
“We have signed a multi-geography receivables purchase agreement (RPA) which eases documentation significantly, as there are 14 different subsidiaries of HCL which are the sellers in this programme. Traditionally, each entity would have had to sign a different RPA in local laws; however, this solution eases the documentary requirements significantly,” explains Vineet Sood, Head Treasury and Executive Vice President.
The Adam Smith Awards Asia are the industry benchmark for best practice and innovation in corporate treasury. The 2024 awards attracted 406 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia
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