Over the past few weeks, our lives both at home and at work have been overrun by the impact of COVID-19. The world today feels like a very different place to the one of just a few weeks ago. So much has changed for so many of us. However, while treasury functions will rightly have been focussing on reinstating a level of normality in terms of their day-to-day operations, we do need to refocus on the matters that were high on the agenda at the start of the year.
As treasurers, we know from experience that at some point the board will want to talk about things other than our preparedness for virus disruption. Our FDs will expect us to have thought ahead and be in a position to support the business.
So, what might the board want to discuss that the treasury team can provide insight on? Here are a few thoughts.
One of the interesting features of the recent disruption is the degree to which it has highlighted the importance of our core relationships. Commentators in the media have suggested that organisations may start to become more selective about who they work with going forwards. Those felt to be inappropriately opportunistic may find life more challenging in the future.
Points that treasurers may want to consider are:
Recent events demonstrate why the cliché ‘cash is king’ is a cliché – it happens to be true. But, as organisations work through the longer-term impacts of those initial responses to economies effectively shutting down, there is an opportunity to revisit capital structure more generally.
For example, in the interests of expediency, many organisations have accessed government-backed lending programmes, an action that may have adjusted the organisation’s capital structure in unplanned ways. Going forward, treasurers need to think about how this additional debt is going to be repaid. One possibility will be issuing equity rather than debt, or possibly a hybrid of some sort.
Perhaps take the opportunity to revisit your organisation’s capital structure and work through what an optimal capital structure might look like. When thinking about this, don’t forget that stakeholders of all types will have a view – both debt and equity investors, but also commercial counterparties (as they consider the long-term viability of the business they are working with) as well as rating agencies.
As I write this in late April, the post-Brexit transition period is still due to come to a close on 31 December 2020.
Even if a further postponement is announced, at some point, this particular will reach its conclusion – and it’s important not to lose sight of implications for the wider business and for treasury in particular.
Under the auspices of the Financial Stability Board, the G20 has reaffirmed the intention for LIBOR to no longer be submitted after 2021 – so yes, LIBOR transition is going ahead. There is actually quite a lot of activity under way currently, with consultations from the tax authorities in the UK on tax implications and an exposure draft from the IASB on the impact transition has on hedge accounting, both currently open for comment.
In addition, a number of the bank LIBOR transition teams, markets regulators around the globe and trade associations are continuing to work to develop market conventions and products to enable the establishment of a liquid cash market. This, in the long term, may actually prove beneficial to transition as the market will be better prepared by the time corporates and other end users are in a position to focus on this once more.
The milestones previously announced may quietly disappear, but so will LIBOR…
At the start of 2020, the world was abuzz with talk of climate change, sustainability and the need to save the planet. None of that has changed. If anything, the improvements in air quality and benefits to wildlife that lockdowns have brought about merely serve to demonstrate just how much damage humanity is doing to the environment.
Sustainable finance has not disappeared from the radar during the recent crisis, with a number of social bonds being launched. However, sustainable finance and ESG in general will need to go back on every treasurer’s radar in the medium term. Stakeholders will raise this issue on a regular basis.
For more help and information on these issues, you can attend sessions at The Association of Corporate Treasurers’ (ACT’s) forthcoming International Treasury Week, 11-14 May. All of these topics will be covered over the course of the four-day online event – by speakers including the Financial Conduct Authority on LIBOR transition and former Bank of England governor Mark Carney on ESG.
The event is free to attend and all content is delivered remotely, so, take a look at the agenda, register and get back up to speed on those topics you know that you’re going to be asked about very soon.
Sarah Boyce is associate director – policy and technical – at the ACT