Cash prevails while sustainability-linked finance continues to fall in treasury agenda

Optimism is growing among corporates, according to the Corporate Debt and Treasury Report, published by Herbert Smith Freehills and the Association of Corporate Treasurers (ACT). The research found that a majority of treasurers report a return to ‘business as usual’ for the year ahead, suggesting that they are increasingly acclimatising to challenges such as continued high interest rates. 

In comparison to 2023, double the number of respondents reported that macroeconomic and geopolitical events would have no, or a minor, effect on their 2024 debt strategy (41% compared to 25%). Nonetheless, many corporates are still mindful of upcoming macro-events, including the number of elections taking place globally in 2024.

“Corporate treasury teams continue to develop new ways of dealing with emerging headwinds,” said Kristen Roberts, head of the UK Corporate Debt Practice at Herbert Smith Freehills. “Disruption appears here to stay and corporates are focussed on liquidity. A return to treasury fundamentals means that for many, discretionary activities such as sustainable finance are now far down their agendas.”

The significance of cash and conserving it on a balance sheet for secure business activities was a recurring theme, with one respondent commenting: “Cash is king. Before, quantum and tenor [of debt] were key. Now, it is interest rates and management of working capital that are important.” The ability to access multiple sources of liquidity was also seen as important for overcoming impediments and managing changing investor policies towards raising debt in the year ahead. 

The popularity of sustainability-linked finance continues to dwindle, a trend raised in last year's report. As one respondent commented: “In 2021 it [sustainable finance] was really in vogue…how could you not do it? A few years on far fewer are doing so.” Although ESG and sustainability remain a core part of corporates' strategies, many businesses are reluctant to agree on separate sustainability performance targets in their debt financings. Furthermore, 47% of respondents did not foresee ESG having any impact on their financing strategy in the next 12 months.

Concerns over reporting and verification requirements (59%) and overall ESG corporate strategy being more important than individual products (57%) were the top factors cited as inhibiting the greater adoption of sustainable finance products. These were followed by greenwashing concerns (45%), and concerns of public perception if the facility was declassified/targets were missed (19%).

“Sustainability-linked finance has, for many, lost its appeal, particularly for those who have not yet embedded that within their financings,” added Roberts. “In the bank market at least SLLs have proved to be time consuming to implement and, for some, cumbersome to deal with on an ongoing basis as well as creating wider risks and concerns to manage than the benefits provide. As sustainability increasingly forms part of the credit process its role in driving performance through margin adjustments looks set to diminish.”

 

Closing the gender gap in trade finance 

Specific features of trade finance amplify the difficulties faced by women-led businesses and their ability to participate in trade, according to a report released by IFC. The report, Banking on Women Who Trade Across Borders, examines the challenges women entrepreneurs face in accessing trade finance and provides solutions to alleviate them.

“IFC is committed to reducing the trade finance gender gap and helping women-owned businesses thrive,” said Mohamed Gouled, Vice President, Industries, IFC. “To improve access to trade finance for women-led businesses, we need to understand better the challenges surrounding their access to trade finance. This study is the first attempt to bring greater clarity to that subject.”

The exchange of goods and services between entities in different countries often involves a complex set of transactions, multiple institutions, as well as financial intermediaries. To add to the complexities of cross-border trade, SMEs and specifically women-owned or led SMEs in emerging markets experience various levels of difficulty in getting financing from banks.

Accessing trade financing also presents greater challenges for women because they operate informally, so they are excluded from public records, which financial institutions use to assess customers before extending trade financing. They often lack sufficient collateral, as they generally own fewer assets. On average, they tend to be smaller and younger, which means that they have shorter credit histories.

The report provides potential solutions for relevant stakeholders, both in the private and public sectors. The IFC said it believes this is a necessary first step to increase the significant economic potential for women-owned businesses through international trade.

“In conjunction with the release of this report, I am pleased to announce the launch of IFC's Women in Trade Network,” said Nathalie Louat, Global Director Trade and Supply Chain Finance, IFC. “This Network, comprised of female leaders in the global trade finance market, will focus on finding ways to reduce the barriers women face in accessing trade finance and support them to participate fully in trade-related activities.”

 

Mastercard JV switches first domestic transaction in China

Mastercard NetsUnion Information Technology (Beijing) Co., Ltd. (Mastercard NetsUnion) has begun processing payments made in China with Mastercard cards issued by the country’s banks. In addition, the joint venture confirmed that Mastercard-branded cards will now be accepted for both domestic and international purchases.

“Since entering the market nearly 40 years ago, we have built strong relationships with China’s banks, merchants and fintechs to connect its people to the global economy,” said Michael Miebach, CEO of Mastercard. “With our local partner NUCC, our goal is to simplify the payments experience for China’s Mastercard cardholders both at home and overseas.”

In February 2020, the People’s Bank of China (PBOC) granted principal approval for Mastercard NetsUnion to begin formal preparations for a domestic bankcard clearing institution in China. Since then, the joint venture has established standards, rules, structures, and infrastructure in line with local regulatory requirements and obtained the required certificates for a local switch business. In November 2023, Mastercard NetsUnion received formal approval from the PBOC and the National Administration of Financial Regulation (NAFR) to commence domestic bankcard clearing activity.

For decades, Mastercard has provided international visitors to the Chinese Mainland with ways to pay. Over the past year, the company’s “Pay Like a Local” programme has been widely recognised as adding to this effort. By linking internationally-issued Mastercard cards to Chinese digital wallets, the programme gave travellers access to the popular QR code payments while shopping at tens of millions of acceptance locations across the country. 

 

US stock market liquidity is healing

There are signs that US stock market liquidity is improving - that it has become easier and less expensive to buy and sell equities at quoted prices, according to Goldman Sachs Global Banking & Markets. 

Top-of-book liquidity on the S&P 500 Index rose to US$18m on May 6, up from US$8m a year ago, and has more than doubled in the last two weeks, said Scott Rubner on the Emerging Markets Ex-Asia Derivative Sales and Macro Execution team. Top-of-book liquidity refers to the difference between the highest bids and the lowest asks in the order book. A larger number signals a deeper, more liquid market.

Rubner added that liquidity has improved because US stocks have been less volatile, there has been less demand from traders for hedging, and markets have rallied, handing investors better returns. There is also more clarity around where central banks may go from here when it comes to interest rates.

 

Citi strategic investment in Cicada to facilitate institutional e-trading of Mexican government bonds

Citi has made a strategic minority investment in Cicada Technologies. The investment was made by Citi’s Markets Strategic Investments unit, which is responsible for sourcing and executing strategic investments relevant to Citi’s Markets franchise. Citi will also act as a liquidity provider for the trading platform.

Cicada is a fintech based in Greenwich, Connecticut, with a presence in Mexico. Citi joins existing investors Kaszek Ventures, Dila Capital, and BCP Securities.

Cicada has built an all-to-all electronic alternative trading system (ATS) that helps global institutional buy-side and sell-side market participants trade Mexican government fixed-income securities without a pre-existing trading relationship. The ATS is registered with the SEC, and the broker-dealer activities of Cicada Securities LLC (a subsidiary of Cicada Technologies Inc.) are regulated by FINRA.

Cicada enables the e-trading of 28 Mexican government bonds, including nominal fixed-rate notes (Mbonos) and inflation-linked securities (UDIBonos) that can settle in Indeval, Euroclear, or Clearstream. The company is also looking to enable the trading of Cetes (Mexican T-bills), TIIE (Mexican interest rate swaps), Mexican corporate bonds, and other emerging market government securities.

Cicada aims to speed the adoption of e-trading via a Central Limit Order Book (CLOB) and Request for Quotes (RFQ) protocols. The platform also offers automation tools for buy-side and liquidity providers, efficient trade execution, connectivity to post-trade services, and data analysis of live and historical bond prices.