Businesses in the Middle East continue to make their way in an economic climate that can, in common with elsewhere in the world, be hard to read. On the one hand, oil prices appear to have found their level. On the other, volatility is a near-constant feature.
Transaction activity shows encouraging growth in the Middle East, while also remaining fluid. Deals in the region increased by 13% last year, according to Thomson Reuters, reaching $56.2bn, the best period for M&A activity since 2008. On the other hand, equity and equity-related issues declined over the year.
Companies are focused on liquidity and risk management. But the region has a lot of positive features on its side: young populations, a strong will to diversify economies away from oil and a corporate environment that is committed to professionalising its talent base.
We see that particularly within treasury. The influence and scope of treasury is growing, with companies seeking out skilled and experienced professionals capable of taking a lead and managing the complexities of this environment.
Good treasurers are proving a solid investment – more than covering their costs when it comes to protecting their businesses and increasing shareholder value. In turn, the treasury infrastructure within companies is developing; products and structures are increasingly similar to the ones we would expect to see in more developed markets.
What we can see from the quality and range of nominations is a greater degree of attention being paid to core treasury disciplines
Evaluating entries for the ACT Middle East (ACTME) Deals of the Year Awards provides an excellent opportunity to look over the shoulders of treasury professionals in the region.
What we can see from the quality and range of nominations is a greater degree of attention being paid to core treasury disciplines. These are the businesses whose focus on treasury enables them to get ahead in their market sectors.
At one end of the scale, we see entry-level treasury functions that have begun to implement core treasury functionality. At the other, we see sophisticated and nuanced activity. At Etihad, for example, which this year takes the Large Corporate Treasury Team of the Year Award and the Corporate Finance Award, we see a corporate treasury department that is continuing to innovate.
And in family-run businesses such as Almoayyed, we see businesses that understand the benefits to be had from centralising their treasury activity and automating processes.
Etihad is well known for its commitment to professional development through ACT qualifications. It has already supported a first tranche of students as they worked towards their entry-level qualification, the Certificate in Treasury Fundamentals, which was introduced last year.
My thanks go to the judging team – themselves treasurers and advisers working in the Middle East – for the time and care they have committed to evaluating awards entries. I hope you enjoy reading about the region’s winners and runners-up.
Matthew Hurn is chair, ACT Middle East, and executive director, head of finance, emerging sectors, at Mubadala Development Company
Matthew Hurn, panel chair, and executive director, head of finance, emerging sectors, Mubadala Development Company
Peter Matza, engagement director, ACT
Debashis Dey, partner, White & Case
Andrew McMichael, group treasurer, Agility
Kevin Murphy, group treasurer, Yusuf Bin Ahmed Kanoo
Gary Slawther, corporate treasurer, OCTAL
Ricky Thirion, group treasurer, Etihad Airways
There were five categories in this year’s ACTME Deals of the Year Awards:
The deals and corporate finance management categories were judged according to the criteria of excellence in treasury:
The Teams of the Year were judged on:
Note: If a conflict of interest arises during the judging process, the judge concerned withdraws from the discussion and decision-making.
Automating and upgrading cash handling has given one Emirati-based property company an edge
Winner of this year’s Treasury Funding Award, Khidmah LLC is an Emirati property services company with a portfolio of 30,000 flats and villas, and a cash management system that, until last year, was in acute need of an upgrade.
Khidmah’s properties bring in AED 730m in receivables, while AED 538m goes out to contractors on maintenance and repairs. Managing collections and reconciliations across multiple enterprise resource plans (ERPs) represented a time-consuming and costly process for the company.
And with more than 2,000 monthly vendor payments and refunds going through the accounts, and a payments system dominated by cheque and bank transfer letters, Khidmah’s treasury function also needed a solution that would streamline a myriad small payment streams.
Khidmah’s treasury function opted to integrate its multiple ERPs via a host-to-host channel in order to integrate payables and receivables, and carry out associated reconciliations.
On the payables side, Khidmah moved from multiple ERPs to just one – from SAP. The treasury team, working with Abu Dhabi Commercial Bank (ADCB), automated all payments onto a cash management platform from Procash. ADCB’s payment solutions were integrated with the ERP, and reconciliation of bank accounts is achieved via MT940, an automated reporting set-up from Network International.
On the collections side, as well as rental payments, Khidmah needed to take account of differing timescales (service payments and maintenance fees can be paid annually, or ad hoc in the event of repairs) and payment methods.
This project has improved operational efficiency and brought about a cost reduction
So, automating receivables included facilities to cover remote cheque scanning for current and post-dated cheques integrated with other payments, such as cash handling, POS, MPOS and online payment gateways.
What stood out for the judges was the degree to which the treasury team’s work contributed to the wider business, enhancing both the customer experience and commercial offering of the company. Khidmah’s treasury, the judges said, rightly grappled with the complexity of this project to greatly improve the efficiency of its cash management processes.
Isaac Thomas, head of cash management at the nominating bank, ADCB, said that the project had “further strengthened the relationship between the bank and Khidmah, improved operational efficiency and brought about a cost reduction”.
Issuer: Khidmah
Provider: ADCB
Structure: Payables and receivables automation
“This represents a big stride for this company and shows how property management companies in the region should be doing things”
AED 730m in receivables
AED 538m in payables
30,000 luxury properties (flats and villas)
Private charter airline Royal Jets, based in Abu Dhabi, impressed the judges with its introduction of a cash management platform to reduce risk and manual errors, and improve security, reporting and reconciliation.
The upgrade links Royal Jets’ Oracle-based ERP to the National Bank of Abu Dhabi’s web portal for payments and feeds back into Royal Jets’ infrastructure for verification and reporting. Royal Jets and the bank developed and implemented the architecture jointly.
The judges said: “This is early-stage treasury work done well. While good cash management is a core treasury function, as liquidity tightens, it becomes increasingly important. It’s good to see people doing the basics well, particularly where they are introducing treasury tools and techniques for the first time.”
A sophisticated joint bond from Etihad Airways drew the judges’ attention and applause
Etihad Airways took this year’s Corporate Finance Award with a distinctive joint bond issue in which the airline accessed global debt capital markets on behalf of itself, a subsidiary and five other linked airlines.
The deal brought together Etihad Airways and its subsidiary Etihad Aviation Services, along with Air Berlin, Air Serbia, Air Seychelles, Alitalia and Jet Airways – all strategically and commercially linked to Etihad Airways via minority equity stakes that Etihad holds in each of the others.
The $700m five-year debt was achieved on an unsecured basis, in spite of the fact that some of the parties are weak creditors. Each of the debtors’ material obligations is held on a stand-alone basis, although default by one might lead to an event of default on the notes.
While Etihad could arguably have raised funds more cost-effectively on its own, structuring the deal in this way enabled the airline and its co-debtors to create a centralised funding vehicle, which meant all parties could go to the capital markets at once and allow investors to access multiple airline debt in one structure, buying into one large debt vehicle instead of multiple single-entity exposures.
As the first deal of its kind, this transaction required Etihad to educate investors about the links between the different parties and their shared interests, but that marketing effort also served to reinforce the strategic link between the parties among global investors.
The transaction brought considerable challenges, not least marketing the innovative and complex structure to investors. What is more, the deal environment was far from favourable over the course of the third quarter of 2015.
The deal has established a presence in international capital markets
Conditions in debt capital markets deteriorated significantly just as the transaction was due to be launched. That gave the group only a short time in which to launch and close the deal.
The cross-border funding effort also required significant input in terms of legal and tax advice to ensure all elements of the transaction were fully compliant. To deploy the proceeds, the funding vehicle required loan and non-convertible debentures structures, and in the case of Jet Airways, currency restrictions required a finer hedging strategy.
Group treasurer Ricky Thirion said: “The success is a major endorsement of the shared vision and strategies of these businesses. The deal allowed Etihad to educate global investors on the Etihad Partners’ ‘story’ and strategy, and has established a presence in international capital markets.
“The centralised funding vehicle enables the Etihad Equity Partners group to efficiently access the capital markets in a sustainable, cost-effective manner and at a size that makes it attractive to investors.”
Issuer/borrower: Etihad Airways
Provider: Lead banker: ADS Securities
Structure: Collateralised loan obligation
Amount: $700m
Tenor: Five years
“This was a really interesting, complex deal with enviable financial engineering. The credit challenge was so much greater than other entrants”
121 Size of the airline’s current fleet
10 additional aircraft are due to join the fleet in 2016
3,185 Number of Emirati employees
A deal to refinance Al Maqsed – Zayed University debt was highly commended by the judges.
Signed in July 2015, the refinancing, secured by Mubadala Corporate Finance & Treasury and the Abu Dhabi Education Council, took outstanding debt of AED 3.1bn in senior and conventional debt, an Islamic facility and a mezzanine facility spread across 11 banks, and combined these elements into a single senior conventional facility across five banks.
The refinancing halved the margin and saved interest to the tune of around AED 265m.
The judges agreed that the results demonstrated a diverse skill set at work. The refinancing comprises mezzanine funding and a range of providers, as well as taking advantage of a lower prevailing interest rate. “This was a model built internally; they didn’t just let the banks do it for them,” they said. “From a treasury perspective, it ticks a lot of boxes with a broad range of treasury tools and techniques.”
A diverse and skilled team at Etihad underpins the airline’s drive towards centralisation
Etihad Airways’ measures to centralise its treasury operations, its move to a new treasury management system (TMS) and to put in place a global cash management operation has cemented this win.
The airline’s group treasury function was established some nine years ago and has evolved from a small team, handling cash and payment activities, to a fully fledged treasury operation with a diverse skills base, covering cash and liquidity management across nearly 100 countries.
Ricky Thirion, group treasurer, said: “Over the years, Etihad group treasury has implemented and continuously improved its policies, systems, processes and controls, and is operating today as a mature large corporate treasury operation based in Abu Dhabi.”
Over the past year, Etihad began work on centralising its treasury operations for its 17 onshore subsidiaries in the United Arab Emirates. As part of that initiative, the airline’s treasury operation moved to a new TMS, a project due to be followed up in 2016 with the implementation of a new single-group enterprise resource plan (ERP).
In preparation for that, the treasury team issued a request for proposals to a range of banks, so as to move the treasury function to its first global cash management operation. The team was also looking for improved reporting and reconciliation, and better commercial terms from providers.
Etihad’s treasury professionals worked with the procurement team and other colleagues from across the airline to carry out detailed evaluations, reviews and selection over six months.
A key objective was to secure a long-term partnership with a bank that would support the airline’s quest for greater efficiencies as part of the centralisation journey, allowing the company to get the best out of its people, systems and technology.
Over the years, Etihad group treasury has implemented and continuously improved its policies, systems, processes and controls
Ahead of the ERP installation, due later in 2016, Etihad has been working on improving centralised access and control of accounts and working capital, while still operating on multiple ERP platforms across its subsidiaries.
In the absence of a single ERP, it was decided that access and control would need to be managed over a bank front-end platform. National Bank of Abu Dhabi (NBAD) worked with the Etihad treasury team to centralise functions and payments management, while ensuring local business access for processing and reporting.
The team also wanted to reduce overdraft facilities and provide quicker access to surplus funds and enhance the yields on surplus balances, through an interest-optimisation liquidity structure.
As part of the treasury-transformation agenda, Etihad worked to improve working capital efficiency, for instance, to establish a treasury view of central cash and working capital for its 17 entities, and improve access to surplus funds, as well as improving the return on those funds through pooling.
A spokesperson from NBAD, which nominated the airline, said: “Etihad Airways has led the way in identifying its own needs, ensuring clear objectives that improve business processes and enhance controls, while reducing risk.
Key to its success is the well-planned and project-managed approach taken. Its manner of operating as a team drives camaraderie between all parties that improves the certainty of success.”
“This is wholly deserved. Etihad continues to push the boundaries and innovate. From doing the basics very well to well-executed deals – the operational element and the team are first rate”
143 different nationalities
349 destinations covered by Etihad and its equity partner airlines
27,000 employees worldwide
Creating an efficient centralised treasury function at Almoayyed International Group has contributed to company-wide objectives
Almoayyed International Group’s treasury team has shown strong performance over the course of 2015 and made significant strides in professionalising and modernising the operation.
With 15 entities in Bahrain and a footprint in 10 other countries globally, the treasury team’s main focus for 2015 has been to move from a decentralised model to a centralised one, and to move from manual processing to an automated cash management platform, with host-to-host connectivity and streamlined treasury operations.
The evolution has been driven by a need for greater efficiency in a tough economic environment, says Ajay Jain, Almoayyed’s financial controller. “The global financial situation has put more focus on working capital management and on more centralised solutions for liquidity management, so that the cash is handled as a corporate asset and the treasurer can control the cash within the organisation,” he says.
Automating the cash management platform at the group has proved a very important and challenging task, accomplished with the help and support of a wide range of stakeholders, including group management, and staff and representatives from BNP Paribas.
“Without the support of the bank and the finance team within Almoayyed International, it would not have been possible,” says Jain.
Layal Hasan, cash management sales EMEA at BNP Paribas, said: “One of the major groups in the Kingdom of Bahrain, Almoayyed has showcased a great treasury performance in the past year.”
The company has moved from cheques to electronic payments, and automation has provided the treasury function with a consolidated view of accounts and enables treasury team members to better manage FX requirements across both local and G7 currencies.
The team has also significantly improved staff productivity and processes. “Centralising and automating treasury has enabled Almoayyed International Group to invest in new tools, which have helped us to improve the quality of treasury risk management. Our operations now enjoy substantially higher levels of efficiency, security and transparency,” says Jain.
With the initiatives undertaken in 2015, the treasury team has been able to reduce banking costs, benefit from greater visibility across entities and manage liquidity across the different countries in which the business operates.
Our operations now enjoy higher levels of efficiency, security and transparency
This, in turn, has left the business better equipped to explore new business lines and territories, and to diversify – an example of how a well-established treasury infrastructure can help to enhance business development.
The most important feature of an effective treasury team is its ability to work towards a common objective, says Jain, for the benefit of the organisation. With the group treasury team there is a commitment to improve continuously by helping each other, and sharing knowledge, experience and information, he says.
The team understands the importance of being forward-looking, he adds.
According to Jain, the achievements of 2015 and the commitment within the company to build a solid treasury team puts Almoayyed in a strong position to operate efficiently and effectively in the future.
“Being well prepared will ensure opportunities can be taken when they come along. If treasury has good insight into its bank’s underwriting and final hold levels for an acquisition facility, this increases the chances of successfully raising a large facility in difficult market conditions,” he says.
“Good internal and external relationships are critical, especially when the treasurer needs to execute a large transaction quickly.”
“The team at this family-run business has made an important contribution to the group’s development”
Trading in five GCC states and 10 countries further afield with 20 subsidiary businesses
Midal Cables’ treasury team faced up to multiple targets with a view to contributing to the company’s overarching aims
Midal Cables in Bahrain is one of the largest aluminium cable manufacturers in the Middle East, with a worldwide customer base and a presence in Australia, Mozambique Saudi Arabia and Turkey.
As well as aluminium and aluminium alloy rods and cables, the company supplies wheel casings for car makers in Europe and the US. Midal has three local subsidiaries in Bahrain and its treasury operation is faced with challenges ranging from cash and FX management to commodity-hedging issues.
Over the course of 2015, Midal Cables’ four-strong treasury team has worked to optimise the company’s cash management across the company’s operations.
The treasury function’s other achievements include centralising treasury management out of Bahrain for the company’s global operations, and optimising FX flows and liquidity requirements of all the different entities. The team has also structured a significant supply chain financing project involving global operators.
The move to centralise operations across local entities and across borders marked a considerable evolution for the family-run business, says Hari Ravi, corporate banker at nominating bank BNP Paribas, and has brought important benefits, not least around visibility. “Midal Cables has managed very well with an efficient treasury management team to centralise its operations and now has a global visibility and control over its liquidity and FX requirements,” he says.
“The team at Midal makes good use of cash management tools,” he continues, “and has automated its banking transactions in a very short time frame of a year and a half across all entities and countries.”
The treasury centralisation effort has been driven by increasing competitive pressures, says Dushyant Paramhans, head of finance and accounting, at Midal Cables. As the company extended its cross-border reach, so the commercial payments landscape globally has become increasingly complex, he says.
The global financial situation has put more focus on working capital management
“Midal Cables needs insight into the balances of accounts abroad and to be able to initiate transactions in local payment formats,” he says. “The global financial situation has put more focus on working capital management and moved corporates towards more centralised solutions for liquidity management, so that the cash is handled as a corporate asset and the treasurer can control the cash within the organisation. Midal is working on exactly this principle,” he says.
The cash management project included switching all manual payments to electronic formats across all subsidiaries, while ensuring resources across the company’s subsidiaries were optimised.
Organising local payments across borders brought with it considerable technical issues, Paramhans says, not least the need to implement an application that can handle many different payment formats and their specific characteristics. “Harmonising these many formats within one system is difficult because they have different validations in the back-end systems,” Paramhans explains.
However, like the work on supply chain finance, optimising the ability to assimilate multiple payment mechanisms put the team firmly in line with the company’s aspirations and business objectives in terms of expansion, cost reduction and increased efficiency.
The team’s achievements have also given them a solid track record in efficient management, says Ravi.
“To implement cash management systems and introduce commodity hedging represents a significant forward step for a family company – a breaking out from a low-risk-taking environment and a departure from the usual ways in which family business are run”
1,500 employees
430,000 million tonnes per annum Total processing capacity
Five internationally based factories
