17
Embracing the Opportunities of Deregulation
The rapid pace of deregulation in Asia creates
opportunities for treasurers on several fronts.
Treasurers can more easily redeploy capital
across borders, either (a) from deregulating
markets to pay down debt, buy back shares, or
pool cash for acquisitions; or (b) to deregulating
markets using cheap internal liquidity to lower the
cost of funding for capital expenditure projects.
Treasurers are also taking advantage of
deregulations to integrate more markets into
regional and global in-house bank structures.
This integration helps companies centralize FX
hedging, netting, and investments to better
manage risk, lower costs and improve returns.
For example, there has been a huge interest in
the tech industry to take advantage of ongoing
liberalizations by the Chinese regulators. The
nationwide pilot programs and Shanghai Free
Trade Zone have enabled Citi’s clients to create
innovative, first-to-market solutions both in RMB
and foreign currencies. These solutions have
helped treasury teams move decentralized cash
management processes into regional and global
centers of excellence.
In addition, deregulation has created
opportunities for tech companies to grow
cross-border eCommerce that links domestic
consumers and small businesses to offshore
markets for the first time. Sometimes regulatory
requirements to enter markets and create
scalable platforms can be opaque, hence
treasurers need a reliable bank partner to
provide advice on evolving regulations.
Regulators are keen to understand new trading
flows and may adapt traditional approaches to
ensure compliance with regulations, and also
support cross-border trade. This flexible
approach has significant benefits for technology
firms and makes it easier for these firms to
invest in previously regulated markets.
Increasing M&A Activity
As technology companies realign to generate
growth, we see the rates of merger and
acquisition (M&A) activity increase. Total M&A
activity reached a record USD802 billion in Asia
in 2014
2
with the technology sector being one of
the most active.
While mature technology companies are
changing their focus and divesting lower margin
businesses, emerging market companies are
acquiring as a means to grow market share.
The divesting company uses the opportunity
to reposition for the next generation of strategic
investments. The acquiring company gains
intellectual property, patents, and a presence
in new markets whilst seeing an opportunity to
lower manufacturing costs through economies
of scale.
For treasurers, managing the cash and treasury
implications of divestitures, acquisitions, and
spin-offs creates significant challenges, not least
because these episodic transactions often
happen within very tight timelines.
Working with both divesting and acquiring companies,
Citi is helping treasurers smoothly execute both sides
of these transactions. Critical success factors include
quickly understanding capital injection, account novation,
and Know Your Customer requirements whilst complying
with FX controls which differ by country.
2
Source: Reuters
Asia Pacific Sector Insights
| Search for Growth: Embracing Opportunities in the Technology Sector
