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.