Cash & Liquidity Management
Published  6 MIN READ
Please note: this article is over 13 years old. If you feel this article is inaccurate or contains errors get in touch here . Many thanks, TMI

Enhancing Project Success for Innovation, Efficiency and Competitiveness

Featuring Michael Guralnick, Global Head, Client Sales Management, Global Transaction Services, Citi  and Swati Mitra, EMEA Region Head, Corporates, Client Sales Management, Global Transaction Services, Citi

As multinationals accelerate their strategies to further globalisation and expansion into the emerging markets, they continue to invest in major capital expenditure projects that are key to establishing and building out local manufacturing and production facilities. These critical investment projects are designed to enhance competitiveness by improving productivity, optimising cash generation, and driving increased cost-effectiveness. In the highly competitive global business environment every company needs to prioritise its investments, mitigate project risk and ensure that financing is aligned with forecasted returns. As such, Citi’s Global Transaction Services business is a key partner to its clients throughout the project lifecycle – from development, construction to operational phases – providing customised solutions to assist its partners in ensuring a successful outcome of their investment. This article looks at some of the techniques in which treasurers and their teams, corporate and/or project finance managers can leverage innovative transaction banking services to support capital projects whilst remaining aligned with the company’s balance sheet and working capital objectives.

Changing influences in project selection, financing and ongoing cash management

The role of treasury has changed considerably since the global financial crisis. As the events of late 2008 and early 2009 unfolded, treasury’s role became pivotal in ensuring sufficient working capital during a period of cash flow and income volatility. CEOs and CFOs became much more cognisant about recognising treasury’s value in managing market, counterparty, sovereign and concentration risk.

Capital projects typically do not have a single owner within a company, with project finance, internal venture capital, the commercial business, corporate finance, treasury and strategy groups all represented. Although the treasury implications of capital projects have always been considerable, financing costs and liquidity implications have become more relevant in the overall budget and cost benefit analysis given the shifts in bank funding and capital markets. Treasurers are therefore now playing a more leading role on project committees to align project risk mitigation, financing and operating cash requirements with the wider strategic agenda.

As figure 1 illustrates, every project goes through a series of phases from inception through to production. Although the order, materiality and specific activities involved in each phase will differ across projects, each phase brings a changing spectrum of risks, financing and cash flow requirements. Each element of financing, liquidity and risk management is frequently addressed on a transaction by transaction basis. However, as financing costs have increased, risks have become more apparent and market access has become less assured, this approach could bring considerable risks. In contrast, by working with a bank with the right  geographic footprint, breadth of transaction banking solutions, and ability to design holistic solutions across the project lifecycle on a consultative basis, treasurers are in a position to anticipate, design and deliver the right financial solutions to manage risk and secure appropriate financing within budgets and time scales.