Unilever sets up global treasury centre in Mumbai

mydigitalfc.com, by Rajendra Magan Palande Dec 06 2009

Unilever has set up one of its three global treasury centres (GTC) in Mumbai, the others being in Rotterdam and Sao Paulo. The GTC in Mumbai literally functions as a ‘bank’ for all the operating entities in the entire Asian region and also the Gulf region.

The savings from this initiative have already surpassed the cost of setting up the centre. The GTC takes calls on forex hedging and liquidity management.

In Mumbai, the GTC acts as the treasury for Unilever's operating companies in the entire Asian region, West Asia and Africa. The GTCs are responsible for hedging of foreign exchange exposures, managing day-to-day liquidity and structured finance. In India, Unilever's subsidiary is called Hindustan Unilever (HUL).

The setting up the treasury is a sign that the corporate treasury function at multinational firms is undergoing a transformation. From managing the company's cash, loans and foreign exchange, corporate treasuries turned risk-focused and began to trade and hedge in the 1980s.

The London-based Unilever’s GTC is a case study of how a corporate treasury’s function in the 21st century has transformed. The GTCs virtually function as a bank for the Unilever companies.

“Ours is a lean team of seven persons in Mumbai,” says Aasif Malbari, head of Unilever Global Treasury Centre (Asia, Africa & middle east).

Unilever no longer looks at finance requirements at the country level. The decision is taken at the regional level. The relationship with banks has changed to multi-fold from single-fold. “Where to hedge a foreign currency exposure can give a 30 per cent benefit on a borrowing,” Malabari told a recent EuroFinance conference on treasury management. Unilever globally has around ¤8 billion of borrowings and net cash flows of around ¤4 billion.

In its annual report, Unilever said its treasury's role is to ensure that appropriate financing is available for all value-creating investments. Additionally, treasury delivers financial services to allow operating companies to manage their financial transactions and exposures in an efficient, timely and low-cost manner. The key financial instruments used by Unilever are short and long term borrowings, cash and cash equivalents and certain straight forward derivative instruments, principally comprising interest rate swaps and foreign exchange contracts.

“The GTC does not operate for profit,” Malbari stressed. The use of leveraged instruments is not permitted at Unilever.

Malabari said the whole process has been automated. “The system shoots the rates and there is auto order matching that happens between banks and us. Any minor error is flashed on the screens within seconds. The key advantage of the GTC is that it helps in reducing risks and in creating value.” The Unilever GTC now only manages the foreign currency part of the treasury. The next target is to manage the local currency part of the treasury but that will require wading through a flood of regulatory constraints.