To establish best practice and help our community to learn from each other’s experiences, we have launched a new series: Community Voices. The Treasury Today Group, along with our series partner, Association of Corporate Treasurers Singapore (ACTS), have reached out to corporates across the world to hear how COVID-19 is affecting their roles as treasury practitioners.

How has the COVID-19 pandemic affected your work? Has the crisis affected your cash flows, your financial markets exposures (for example, FX, IR, and commodities), and your liquidity management?

As some group businesses are unable to operate as normal, the profitability of group-member units declines in line with reduced deposits and loans. Typically, the average scale of total assets of CNPC Finance Company decreased 8.4% year-on-year, but average daily capital under management in March decreased 18.8% year-on-year. Secondly, yield is affected. The stagnant economy, and easing monetary policy, has pushed market interest rates down, leading to less yield on securities investments. Thirdly, the payment cycle is affected, to a certain degree. The shutdown – and then work resumption – during the pandemic makes normal payment disciplines difficult to follow.

As for cash flow, cash inflows of group member units are slowing down. However, People’s Bank of China (PBOC) has adopted easing monetary policies, giving us access to low-cost financing, which helps relieve the pressure. In overseas markets, the pandemic has impacted the economy of the United States and Europe which, added to the oil price slump, is causing global stock markets to plummet. Squeezed overseas liquidity applies intense pressure to our liquidity management, especially where there is a lack of efficient contingency planning, and short-term loan repayment is under tension. But this also shows there is much potential for us to improve our liquidity management and emergency response capabilities.

How are you coping with your cash flow forecasting and hedging strategies during this period of great volatility?

For cash flow forecasting, firstly, we analyse the trend from a macro point of view. We expected the treasury settlement volume decreases and the cash collection to go down, but loosening of the financing environment offset the impact to a degree, so the whole cash flow is still efficient. Secondly, we forecast and analyse different scenarios – optimistic, objective and pessimistic – in the light of different levels of interest rate, liquidity and FX risk. We adopt mild, medium, and serious stress-testing, and we also carry out stress tests for different oil prices. With the analysis and testing, we strive to maintain adequate liquidity through instruments such as commercial paper issuance, interbank lending and repos.

As our liquidity challenge in mainland China is minimal, our hedging strategies focus on relieving liquidity stress abroad. Firstly, we replace debts with bank loans or other safer loans; for example, replacing securities repos with bank loans. Secondly, by extending short-term debts to longer term (such as one year), we avoid a liquidity crisis caused by credit termination and customer withdrawals. Thirdly, we ensure we keep in contact with member units, attracting deposits from them. Finally, we coordinate domestic and overseas capital, using the more abundant domestic capital to relieve external liquidity pressure through cross-border cash pools.

Are you sticking to your pre-defined risk management strategies or have you adopted something different?

Domestically, we stick to our pre-defined risk management strategies, but we have adopted stricter rules and measures in cash forecasting, liquidity management, and stress-testing.

Externally, we have adopted more prudent risk management strategies and more diversified mitigation measures. We have shifted our focus from short-term and low-cost financing to long-term and safer solutions. We are coordinating all resources to alleviate external capital shortfalls, replacing with them with safer loans, extending loan terms and employing cross-border cash pools to allocate domestic and overseas capital.

What are your top priorities at this time? Do you find it challenging to access market liquidity or what constraints do you face in managing your financial risks?

Priorities differ for domestic and overseas capital. Domestically, as PBOC eases monetary policy, we pay more attention to yield. Externally, we focus on adequacy of liquidity, as well as the downgrading and insolvency of some related companies. We met some liquidity shortages in Hong Kong, but we have already managed to solve them.

As for constraints in financial risk management, firstly, we were not fully prepared for the violent overseas market fluctuations and liquidity tensions, lacking a multi-layer provision mechanism, so we keep improving it dynamically right now. Secondly, we still need to improve the coordination of domestic and overseas capital. Thirdly, China’s domestic financial market differs greatly from foreign markets, but the regulatory authorities use the same standards for domestic and overseas businesses. As an example, due to the international oil price slump, CNPC faces many challenges in CP issuance, and the interbank borrowing proportion is limited by the regulatory authorities, so our company cannot borrow, affecting company financing. Also, duration allocation of overseas balance sheets is bringing market liquidity pressure into consideration. Lastly, domestically, the efficiency of bank transfers, and some other activities, has been affected as only a limited number of bank staff work on site.

How has your company reacted to the pandemic? How do you ensure business continuity at your set-up? How are changes in work set-up affecting you and your treasury team?

In the face of COVID-19, firstly, we must ensure the safety of our staff. We set limitations on the number of on-site staff, based on the national severity of the outbreak. For those who do not need to work on site, we allow them to work from home and stay in touch through online working platforms. Where the local situation is less severe, we allow more staff to work in-office, but still strictly adhering to distancing to ensure their safety. Additionally, we use teleconferencing and video conferencing tools to improve efficiency and flexibility.

We ensure business continuity by scheduling onsite staff, setting an efficient division-of-duty between onsite and home-working staff, and ensuring there is cooperation and communication.

How are you using technology to enable your work-from-home plans and has it been a challenge?

Our team can communicate effectively through mobile phones, online communication tools, and online conference platforms. It is not a challenge for our team to work from home.

How are you keeping informed of global governmental decisions that could be of relevance or benefit to you?

We acquire global governmental information from sources such as Wind, Bloomberg, Reuters, WeChat, and major news agencies.

How is the treasury coping with the numerous demands from within the organisation for ensuring the continuity of the underlying business and maintaining optimal risk management?

We keep in constant contact with the member units of our group. This is especially so for those in the worst-stricken districts. We must understand their needs so that we can help them solve issues and provide capital support or other services, giving some preferential treatment to the worst affected member units.

To maintain optimal risk management, we first established a multi-layer provision mechanism, to deal with abrupt liquidity pressure with different cost capital. Then we strengthened contact with the member units and prepared cash positions in advance. Further, we emphasised the need for stress-testing and constantly improving our ability to cope with extreme risks.

Do you find it challenging to cope with your team’s morale and ensuring the performance via work-from-home setups? In general, how do you manage the level of uncertainty amongst your staff and balance it with the need to fulfil the crucial treasury duties at work?

I do not think it’s challenging. Our team has the positive collaborative spirit essential to cope with the difficulties, and CNPC has for a long time held a very good company culture.

Firstly, we ensure the health and safety of our staff, encouraging them to work from home when necessary. The health of our staff is the foundation of work effectiveness. Secondly, our staff realise that their career is deeply connected to the company’s interest; only by working together can the whole company deal successfully with the hard times.

Is there a lesson that the COVID-19 pandemic has taught you?

There are several lessons:

• National and company culture plays a decisive role in the operation of an organisation, especially in the face of a crisis or disaster.
• Globalisation has seen the crisis spread among various countries; individually these countries are fragile during this crisis, so each has to strengthen cooperation in coping with the effects.
• The real economy, especially industry and its supply chain, is crucial for a nation, and financial institutions and treasuries play an important role in serving the real economy.
• We should pay more attention to the extreme risk events and their impacts on businesses, working to improve our contingency plans.
• Maintain the flexibility and coordination skills of the team in different working scenarios, including off-site working.
• Support solidarity during a crisis.
• Liquidity management is a priority for a company, so always keep abundant cash reserves, and keep the debt ratio within a moderate range.

Do you think that this pandemic has shown that the global economies and countries are distinct and different or has it further proved that we are all interconnected and dependent?

The global economies and countries are interconnected and dependent. The whole of mankind has become a community of shared destiny, ecologically, economically and financially. Countries should work practically to deepen the development of the common community.

If you would like to be part of our Community Voices coverage please email sophie.jackson@treasurytoday.com

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