Treasury Priorities for Multinational Corporations - Middle East and Africa

24 | Treasury Priorities for Multinational Corporations However, managing intercompany loans necessitates careful navigation of regulatory complexities, particularly concerning transfer pricing and thin capitalization rules. Recognizing these challenges, banking providers (including Citi) offer advanced tools and capabilities designed to simplify and automate the process. These solutions enable seamless tracking of intercompany loans and incorporate functionalities to automatically apply transfer pricing requirements, streamlining compliance and enhancing operational efficiency for these vital internal funding structures. Equity injections represent another major pillar, providing a stable, long-term capital base crucial for new ventures or substantial investments, though they come with considerations around withdrawal flexibility and potential withholding taxes. For external financing, local bank options are utilized to mitigate local currency exposures and cultivate regional relationships, even if they often entail higher interest rates and shorter tenors. Meanwhile, international bank financing offers access to more competitive costs and deeper global liquidity, particularly for established multinational corporations, but necessitates sophisticated hedging strategies to manage direct foreign exchange risks and navigate complex legal frameworks. The concurrent use of these varied funding methods underscores a highly tailored capital structure, allowing organizations to adapt to the specific requirements of each subsidiary and the unique economic landscape of the MEA market. Anticipated Changes to Subsidiary Funding Model Despite the existing funding preferences, most organizations anticipate a degree of stability in their subsidiary funding models. 87% of respondents expect no changes to their current approach. This suggests that for many, their existing structures are deemed appropriate, effective, or simply too complex and costly to alter frequently. It could also reflect a conservative approach in a region often characterized by uncertainty. For the minority that does anticipate changes, the focus is predominantly towards local bank financing. This trend could be driven by a desire to mitigate FX risk, both in terms of FX rate and FX liquidity, deepen local banking relationships, or respond to increased liquidity in certain local markets. Some companies foresee an increase in reliance on intercompany loans. This indicates preference for the flexibility and control provided by internal financing. A smaller piece expects to increase reliance on equity injections. This could be tied to long-term strategic investments, capacity expansions, or a need to strengthen subsidiary balance sheets in challenging environments. The relatively small percentages of organizations expecting changes highlight that while MEA is dynamic, fundamental shifts in funding models are considered carefully and are not a widespread immediate reaction to market conditions for the majority. Changes to Subsidiary funding model No Yes, expect to increase reliance on local bank financing Yes, expect to increase reliance on intercompany loans Yes, expect to increase reliance on equity injections 87% 3%2% 8%