Borealis is a leading provider of chemical and innovative plastics solutions that create value for society. With sales of €6.3 billion in 2010, customers in over 120 countries, and around 5,100 employees worldwide, Borealis is owned 64% by the International Petroleum Investment Company (IPIC) of Abu Dhabi and 36% by OMV, the leading energy group in the European growth belt. Borealis is headquartered in Vienna, Austria, and has production locations, innovation centres and customer service centres across Europe and the Americas.

Jan-Martin is responsible for the areas of treasury, funding/corporate finance and financial risk management. Before joining Borealis in 2006, Jan-Martin was Head of the Treasury and Risk Management Department at SWISS International Airlines. Prior to that, he worked both in corporate treasury as well as in banking and structured finance of several international companies including ONE, VIAG (now E.on), Babcock & Brown and Bayerische Landesbank.

Like many treasuries in the early 2000s, Borealis chose to outsource its operations. At the time, outsourcing made complete sense – offering an easier and cheaper way to access state-of-the-art systems, as well as mitigating staffing issues such as covering sick leave or having skilled workers available at short notice during an emergency.

When the company’s corporate headquarters moved in 2006 from Denmark to Austria, it seemed like a natural time to review existing processes and look for improvements. As the outsourcing arrangement was not necessarily delivering the level of service and quality that the company expected any more, and the technology market had made leaps and bounds in terms of solution scalability and affordability, the decision was made to take treasury back in-house.

In 2007/2008, Borealis embarked on an ambitious organisational restructure, which also involved re-insourcing treasury. At the same time, the company put in place an impressively end-to-end straight through processing environment, to improve efficiency, compliance and also to allow scarce human resources to be allocated to more value-added treasury tasks. Although both projects have since turned out to be a great success, Jan-Martin Nufer, Director Treasury and Funding, Borealis, says that one of the most significant challenges was building up the know-how in-house to deal with all the necessary treasury tasks.

One of these tasks, as Nufer explains in this interview, was to prepare the company financially for a prolonged period of industry cyclicality and economic turmoil. We also look at Borealis’ key treasury focus areas for the future, including talent management.

Borealis recently undertook some ‘alternative financing’. Why was this necessary?

Since 2007, when we closed our main syndicated credit facility, we have been interested in looking at the overall financing portfolio of the company, with a focus on diversification and ‘terming out’. We never had a tangible problem that needed to be resolved, as such. The real need for alternative financing solutions related directly to our desire to find the optimum financing strategy and mix for the company.

In addition, we wanted to implement satisfactory additional headroom to weather a potentially longer financial crisis – the company has historically followed a prudent and conservative financing approach. The target that we set in 2008/2009 was €600m of additional funding. What we actually came out with a few years later, including all types of what we classify as additional ‘alternative financing’, was a total transaction volume of roughly €850m distributed over nine transactions.

Just coming back to your point about the necessity of alternative financing though, there were of course additional external environmental factors impacting corporates’ financing decisions at that time. The major ones that we, and most market participants observed, can be summarised (without claiming here completeness or academic accuracy) as: a changed banking environment and landscape, which saw consolidation and banks going out of business, presenting a new counterparty risk. Increased regulatory pressure was an additional consideration. Last but not least, was that ‘buzzword’ volatility.

What I really mean by this is an increasingly unpredictable market environment, which in fact put us as corporate treasurers in the position of needing to broaden the treasury’s toolset and review the corporate finance options in light of changing conditions. The early preparation for these changes gave us the opportunity to pick and choose the best alternative at any point in time. Really, this was the root of our desire to pursue the alternative financing approach.

How did your banking relationships change during the crisis?

We were fortunate in that we have an excellent group of relationship banks, most of whom have supported us for many years. They understand the nature and cyclicality of our business very well. Support from our banks continued throughout the financial crisis, showing the importance of selecting the right group of banks in terms of number, choice of partner and the right structure. At Borealis, we have strived to achieve a suitable balance of roughly 20 global, international, regional and local banks.

This diversification provided a very significant advantage in the period where availability of liquidity at reasonable prices (if at all) was a scarce commodity. Together with the longer-term nature of the mid 2007 closed favourable syndicated revolving credit facility, Borealis had a comfortable and advantageous starting point to undertake some alternative financing.

How did you go about assessing the alternative financing options available to you and what were those options?

Most important to the assessment of the suitable alternative routes was the starting point of having as broad an overview as possible of the options in the market. This includes the assessment of different markets, such as the debt capital markets, different countries, ie regional financing markets and opportunities, as well as various potential lender or investor groups.

In order to ‘cherry pick’ the most suitable options, the universe of possibilities needs to be screened as heavily as possible. This screening should ideally include an open dialogue with the banks and also with colleagues and in-country organisations. The latter is particularly important in respect of financings with a local angle, such as R&D programmes or national financing programmes eg as stipulated by the crisis. Through this route, we were able to make use of suitable local financings in Finland and Austria, for example.

The hands-on assessment of the suitable routes should then be linked to the goals your company wants to achieve, as well as the general eligibility and the level of readiness for certain markets and transactions, for example in the bond market. In the case of Borealis, the goals were longer-term and diversification in either funding sources or markets was vital.

After having assessed the universe of options, (which, by the way, is a very dynamic ongoing process due to new options and changing requirements) the next thing to look at was the market timing. The financial crisis period we all lived through condensed this necessity into a short, intense timeframe, but this is equally true and necessary for any market cycle.

Which routes did you opt for eventually and why?

Before we started the diversification process, we brought €200m additional two year bilateral bank lines into place in order to have the utmost flexibility in our selection of the market timing. The first transaction was then our inaugural US private placement (USPP) followed by a specific local financing and European Investment Bank R&D loan supporting our significant investments in the innovation space. At the time, the USPP was the first market to open again for long maturities over ten years.

In 2010, we targeted the debt capital markets and opted for a strategy to start first with a German private placement (Schuldscheindarlehen) with a volume of slightly over €120m and three and five year maturity, followed by a seven year retail bond issuance of €200m. When talking about the bond, one aspect which was important in the overall assessment was the potential necessity of a public rating. For various reasons, Borealis so far has opted not to go for a public rating, hence we were looking for a bond transaction that was executable successfully without. For this purpose we chose the Austrian market as an entry point. Both transactions were also ‘firsts’ for the company, and based on oversubscription, allocation profile – especially the nicely large international demand, and spread development, were considered a huge success.

After a smaller but very good local long-term financing in Finland, introduced as part of a local governmental programme, later in the year we implemented a €200m ECA foreign investment financing scheme for our expansion in the Middle East in our joint venture, Borouge, with the Abu Dhabi National Oil Company (ADNOC). This has been an excellent match to the characteristics of the project.

What was overall the impact of these alternative routes on the company’s financing structure?

According to our targeted plan, the main impact was a significant terming out of our debt with a high portion of long to very long-term financings. Furthermore, the debt maturity profile, coming from a situation driven by a large single maturity at the date of the expiry of our €1 billion revolving credit facility, was smoothened considerably. We have, by virtue of the new alternative financings, also reduced the drawdowns under our RCF compared with 2008 at the start of our journey. Today, we stand at zero. This means that we now have full headroom under our main bank credit line.

What were the main benefits of alternative financing? How could other treasurers benefit from such an approach?

Apart from the mentioned term effect, diversification comes to mind. Clearly we reduced our bank dependency and broadened our access to capital enormously. As I said earlier, we value our long-term relationship approach with our banks very much. I always like to call this ‘the hidden asset’ in our balance sheet. But it seems prudent (and also in favour of the banks) to decrease this dependency. This comes at a price, but is in my view absolutely the right thing to do.

Bank financing will always be an integral and enormously important, flexible and reasonably priced funding source and I hope that the market in general realises that this is truly one of the core functions of the banking industry: to provide liquidity to the industry. The alternative routes allow you as corporate treasurer to be flexible, to increase your headroom and last but not least to also make the banks happy with some ancillary business. On a more serious note, my view is that in order to structure your company’s financing portfolio in a suitable way, you can’t get away from the alternative routes.

Once the new routes to the bond market, the Schuldschein market, the USPP markets, the ECAs and other supranational entities are opened – and very importantly – permanently maintained, we treasurers can act swiftly and according to market windows and opportunities. In short, you do not want to be stuck with one option, not in these uncertain times.

But surely there must be downsides too?

Obviously such an approach implies a high workload to the team, especially if you run several diverse financings in parallel as we did. Compared to a big ticket strategy covering the whole, or a large part of the financing requirements in one go, the approach to diversify broadly and ‘cherry pick’ entails the review and execution of various sets of sometimes very different documentations. Some of those may be entirely new to the company. Furthermore, some transactions come with new public exposure and induce increased corporate governance and information needs. In our case, the bond led to a new governance procedure and the issuance of a half year report.

The debt capital markets and the USPP activities also prompt new institutions and analysts to look at your company. So, apart from the regular discussions with your bank risk managers, alternative financing activities need to be manned and executed. We have significantly increased our investor relations activities in this regard. Investing in appropriate training for staff is also an important consideration.

So, in summary, alternative routes mean more work on the one hand, but are very beneficial on the other hand. It was a great exercise to have the discussions with analysts coming in with a fresh eye and a new angle and finally seeing that their analysis nicely complements and confirms the views from the banks.

What would be your advice to other treasurers considering alternative financing?

Since I have spoken at length on the other points I will keep it short – do it!

What other interesting projects do you have underway in your treasury?

Well, we definitely will not be getting bored anytime soon. The renewal of our RCF is forthcoming, we will look into our securitisation programme and we also have the next financing contracts for the new expansion into Abu Dhabi to conclude. On the systems side, we have (after the re-insourcing and restructuring into a full straight through processing environment) just upgraded our TMS. We will now look to further boost the company’s financial risk management activities and management information systems. Elsewhere, the treasury at Borealis has a number of key focus areas, including:

• Managing cost savings.
• Continuous process streamlining.
• Managing market risk and challenges.
• Ensuring a sound funding backbone.
• Talent management and succession planning.
• Developing cross-functional and cross-cultural expertise.

Talent is often considered a ‘soft commodity’ – why do you consider it to be so important?

In this age of technology, there is a tendency to overlook the people behind it. Employees are integral to a successful treasury department and that doesn’t just include accountants or subject specialists. What we have found for example is that having someone who actually knows and understands the business or that has a broad background in terms of industry or company set-up is invaluable. Speaking of invaluable, we are really proactive in our talent management and approach employees when we feel they are ready to take on a new challenge. Succession planning is another area where we strive for excellence.

Companies must realise that employees carry a lot of responsibility with them – especially the talented ones that really add value. So, in a way HR is a must for any treasurer looking to stay ahead of the game, in particular when good treasury talent is in such high demand today.