Doing the heavy lifting

Whether it is augmenting HYVA’s working capital management, or navigating his company through one of the highest periods of FX volatility in decades, Rajan Gupta, Group Treasurer has long been comfortable with the heaviest of workloads. In this article, he tells us what attracted him initially to treasury and why the role continues to excite him to this day. He also explains how he managed to get on top of group liquidity management at a Dutch multinational that places a high value on local autonomy.

Early on in his career, at a time when he was still working in the Home Finance division of Deutsche Post Bank, Rajan Gupta was invited to give a speech to the ‘who’s who’ of Indian finance about the mortgage backed securitisation products (MBS) he had helped to roll out for the first time in India. “After that I was known as a securitisation expert,” he recalls.

That Gupta was once known as an expert in the field of securitisation reveals a lot about both his personal character, and approach to his job as treasurer for a large multinational company. Securitised products are, of course, infamous for their complexity. Even the former Chairman of the US Federal Reserve, Alan Greenspan, who is renowned for his sharply analytical mind and aptitude for quantitative problem solving, admitted once to finding such products baffling, describing them as being “beyond human understanding”. That Gupta does indeed understand securitised assets and, moreover, can boast a level of expertise in these notoriously opaque products reflects just how adept he is at making sense of highly complex financial issues. It is a skill which, as we will see, has since served him very well in his career as a corporate treasurer.

A vital role

At a renowned Indian university, Gupta had originally studied law. Yet by the time he began working towards his MBA in Finance at the Institute of Management Technology in Ghaziabad, an earlier ambition to join the bar faded as he became captivated by financial matters. Treasury had a particular appeal as it resides right at the core of corporate finance. “That excites me,” he says. “It is the degree to which treasury impacts on all aspects of the company. I always wanted to be involved in the active part of finance, and that is how I ended up in treasury.”

Naturally, there were several career defining moments along the way. The first of these came when he received his initial induction into the world of treasury after being hired in 1999 by Korean conglomerate Daewoo Motors, then one of the largest companies in the world. At that time, Daewoo was attempting to establish a factory in India from which it would export to Europe and the Americas. The projected cost was $1 billion, meaning the business had to leverage itself considerably to finance the venture. It was, says Gupta, the perfect induction to the work of a treasurer.

“That is where you get tremendous exposure. Any financial instrument you can think of – it was all there. In that first role I was exposed to so many different instruments and practices in the treasury; it was a conduit for innovation and work satisfaction as well.”

The second career defining moment came later on, after he had left Daewoo to take up a role as a senior manager in the Deutsche Post Bank, working specifically in the area of home finance. Here he played an integral role in the launch of the first MBS products in India. “For the first time, my company actually endorsed my initiative, and I worked closely with a subsidiary of India’s central bank in the roll-out of the product.” When he was invited to a conference to explain the structure of the product to some of the most eminent names in Indian finance, he realised he was building quite a reputation for himself. “That helped me to define my career and, ultimately, opened the door for me to move to a bigger role.”

Another career defining moment was joining Nortel Networks of Canada, at one time was one of the most renowned telecom companies of the world, “which opened doors for me to the international treasury and with a special focus on APAC treasury.”

The Dutch way

After a brief spell working in the Hong Kong treasury of Australian telecommunications giant Telstra International, Gupta finally walked through that door, taking up the role of Group Treasurer at HYVA. The first thing that Gupta noticed when he arrived at HYVA was the company set-up being very different from that of most other multinational companies. In Holland, where the company is headquartered, there has long existed an entrepreneurial culture that attaches great value to local autonomy, he explains.

But how does this Dutch business trait shape the decision-making process on treasury matters? “Here all the entities are responsible for their own matters,” he says. “In recent years, we have put strong focus on centralising various process and procedures while maintaining a level of local autonomy and we were quite successful in doing so.” Gupta, as Group Treasurer, will propose the strategy and, once approved at board level, he will talk to the local finance managers responsible for executing what has been decided and keep a track of the progress, in coordination with local management. “Each country where we operate has its own finance manager. These local finance managers are my eyes and ears on the ground, and they are the ones responsible for executing the strategy that we decide upon,” he says.

Overhauling working capital

Local autonomy is indeed a deeply embedded value at HYVA. However, that definitely does not mean that the various entities are permitted to use inconsistent, erratic processes. Especially on working capital front, to support working capital optimisation, Gupta developed internal policy on Accounts Receivable (AR) and Accounts Payable (AP) management, which helped the company to further streamline working capital management.

“We put together a policy on how debtors should be managed and in this policy we have defined processes and procedures – how and when we should chase them, how and when we should follow counterparty credit limits and so on, including covering the risk using credit insurance products.”

These local finance managers are my eyes and ears on the ground, and they are the ones responsible for executing the strategy that we decide upon.

In the post-crisis environment, where liquidity is still drying up and nearly every company is looking nervously at the Days Sales Outstanding (DSO) metrics, optimising the collection process has proved quite challenging, notes Gupta. Yet HYVA has seen significant improvements in this area in recent years. It is nearly all down to the adoption of a two-pronged approach to debtor management, he explains.

The policy was not especially radical, but it sure was effective. In order to further optimise working capital as a next step HYVA is trying to set up receivables discounting programme for some entities, wherein invoices are automatically discounted on the first day and we get the money into the our bank account. “These measures actually help a lot in terms of working capital and also on the debtor risk management perspective,” he notes.

Managing uncertainty

It is in times when the economic climate turns gloomy that measures to optimise working capital management, such as what HYVA introduced, really begin to show their value. The recent market turmoil in Europe, reignited by the election in January of the anti-austerity party Syriza in Greece, has created precisely that kind of environment for many global businesses, HYVA included. The euro, already down on the ECB’s announcement of a new programme of quantitative easing, has taken a mauling against other G10 currencies this year, particularly the US dollar. That working capital management is now performing more efficiently, therefore, is probably just as well as Gupta is now heavily occupied in keeping an eye on the group’s multiple currency exposures.

In my opinion hedging should be balanced. It should never just be fixing the whole lot, because then your upside is gone.

Why has the euro’s recent plunge against the US dollar proved such a headache for Gupta and his team? After all, HYVA are domiciled in the Netherlands and use the euro as their transaction currency in Europe. The explanation, says Gupta, is that with a dollar denominated bond listed on SGX worth $375m, HYVA is a US dollar function globally, and movements in the euro impact the company both in terms of transaction and more importantly translation risk and such significant EUR movements will become more and more a matter of concern.

Of course, the euro may be the biggest but it is far from being the only FX concern for the companies at this moment in time. Latin American currencies have suffered from rampant inflation and geopolitical tensions and the falling oil price precipitated a collapse in the Russian rouble on a magnitude beyond anybody’s imagination only a year ago. All in all, FX volatility has now reached its highest non-crisis level in two-decades, according to recent research by Bank of America Merrill Lynch (BofA Merrill).

When deciding upon the FX risk management policies to be executed across the group’s various subsidiaries, Gupta is eager not to be overly aggressive. “First of all, I’m not in favour of hedging everything,” he explains. “In my opinion hedging should be balanced. It should never just be fixing the whole lot, because then your upside is gone.” Wherever possible, Gupta prefers to find a natural hedge. On the transaction side, for example, HYVA is managing its Russian rouble risk, not with the help of derivative products, but by funding the contract of the customer in euros or in hard currency US dollar which lessens, considerably, the impact of the currency’s current volatility.

Regarding translation risk, HYVA has to date not put a policy in place to actively hedge their exposure, like a majority of multinationals. The sheer scale of the recent market volatility means this strategy is far from being set in stone, however. “I think translation hedging may be necessary, given how markets are performing at the moment,” he says. “If you have a very big exposure in a BRICS market and that market is in trouble then however well you perform there, the balance sheet will probably not reflect the same. It can be a big risk, especially on your financials. So I am in favour of hedging translation risk, although not in favour of hedging everything.”

That HYVA is not hedging every exposure across its 40 global entities is probably just as well for Gupta. Since hedges are decided and executed centrally, FX risk management is, as he says, already a very big job. “That’s taking up an awful amount of my time,” he says. “It involves looking at the way transactions flow in certain countries, the inter-company relationships, flows of goods and invoices, transaction currencies and finally ways to reduce FX exposure or establish natural hedges at first place before using external instruments to hedge the FX risk.”

And that doesn’t look like it is going to change anytime soon. On the contrary, Gupta is likely to be spending more time in the weeks and months going forward working out whether the company’s strategy needs to change in order to account for the extraordinary volatility we are currently seeing. “We will be looking at how we can best manage the volatility, especially on the translation side to address the volatility ensure we don’t take hits from month to month on our balance sheet.”

Scaling the refinancing wall

That pressing task, along with HYVA’s ongoing efforts to optimise its use of liquidity, means that there will be plenty of challenges for Gupta to get his teeth into over the course of the coming year. And that’s even before taking into account of the refinancing of the biggest financial instrument on the company’s balance sheet, the $375m bond due to mature in March next year (the year that many ratings agencies and other commentators, such as auditors KPMG, believe will mark the summit of the next refinancing wall).

In current times, companies are generally looking all the possible refinancing options and not sticking a single source of funding. Generally yields are at peak level in the Asian bond market and therefore bonds are not so attractive source of funding, as it used to be few years back. The syndicated loan market globally has been quite active and many companies have managed to fund themselves.

Gupta is confident that for a business of its type and size, HYVA is well positioned, and he will be putting in the hours in the coming months to lock in new funding at an appropriate rate. “There is a lot of work around making sure we have refinancing in time, at the right price and in the proper condition. That is one of the biggest current projects we have and it is certainly keeping me occupied,” he says.

An expanding role?

It’s a heavy workload, unquestionably, but that’s just how Gupta likes it. In fact, that, along with his love for numbers and mathematical problem solving, is one of the principle reasons why he sees himself staying in treasury for a very long time. Like most treasurers, he would one day like to reach the level of CFO, but that is not an ambition he is set upon realising in the immediate future. There are simply so many exciting things going on in treasury at HYVA at the present time, testing daily his analytical talents, to allow him to ponder such possibilities for too long.

“I like challenges, and deadlines,” he says. “So I think I’ll stay on the treasury side for some time.” Ever keen to broaden his skill-set, however, he does admit he hopes to have the opportunity to delve into new areas around the periphery of treasury – such as accounts, budgeting or tax – in the coming years. Since these are areas that require a high level of specialist knowledge and expertise, they are not usually seen as the domain of the corporate treasurer. But for an individual once recognised by his peers as an expert in securitisation, one wouldn’t bet against Gupta quickly becoming an authority on these matters too in the coming years.