Hot Topics: Extending Treasury Structures for Growth Markets

1 Citi Transaction Services | Liquidity Management Services March 2013. hot topics : Extending Treasury Structures for Growth Markets Priorities for 2013. Citibank, 2013. Speakers Ron Chakravarti Head of Global solutions & Advisory, Liquidity Management Services, Citi Transaction Services Based in New York, Ron leads a global team responsible for the design and delivery of integrated global Treasury solutions for Citi's corporate and financial institutional clients. He has been with Citi for six years. His prior experience includes senior positions in Treasury consultancy; transaction banking strategy and product management; and, corporate banking while based in Asia, Europe, and the US. Gourang Shah Asia Head of Treasury Advisory, Treasury and trade solutions , Citi Transaction Services Based in Singapore, as Head of Treasury Advisory in Asia, Gourang leads a team that provides advisory service to clients in setting up best in class efficiency Structures such as Treasury Center, Shared Service Center, Principal Structures , and In-house Bank.

2 Gourang has over 20 years of experience in Corporate Treasury , Mergers and Acquisition, Financial Planning & Analysis, and Product Engineering. Prior to joining Citi, he was based in the United States as Vice President and Assistant Treasurer of Tyco Electronics. 1. World's Economic Center of Gravity Shifting Eastwards The shift in global economic dynamics is changing the way business is done. Composition of World GDP. 2010 2030 2050. Japan Japan Africa Australia & New Africa Australia & New Australia & New 6% 3% Japan 4% Zealand 7% Zealand Zealand Western Europe 1% 2% Africa Western Europe 1%. 1% 7% 12%. 11%. Western Europe North America 19% Developing Asia 27% 11%. North America 15%. Middle East Middle East 5%.

3 4% Developing Asia Central and 44%. Eastern Europe Latin America Latin America 8%. 4% 8%. North America Commonwealth Commonwealth Commonwealth Developing Asia 22% of Independent of Independent of Independent 49%. Latin America States States Central and Central and Middle East States 9% 4% 4% Eastern Europe Eastern Europe 4% 3%. 3% 2%. Source: Citi 2. trade Flows Shifting from OECD to EMs For Treasury , managing liquidity, funding and risks in emerging Markets is becoming a key focus. Significant shift in global trade to Trillion USD. Emerging Markets will necessitate Latam N. America prudent management of associated W. Europe sovereign, counterparty & supply chain risks CEEMA. Given the bulk of trade transactions are denominated in USD, the overall Growth Asia in world trade , especially in EMs, will significantly increase the need for USD.

4 Funding Total trade Flows $13T $37T $122T $287T. Emerging Market 33% 55% 69% 75%. trade Flows1. Emerging Markets includes Asia, LatAm and CEEMA. Source: World Bank, BEA, WTO, BIS, CIRA , Citi GPS: Global Perspectives & solutions 3. Change Agents Impacting Treasury Today The rapidly globalizing supply chain, an evolving corporate finance environment and market forces makes 2013. a time to re-engineer Treasury for Growth Markets . Changes to Trading Model Shift in supply chains to emerging Markets is driving re-engineering of corporates'. core operating models with profound impact on Treasury Emphasis on Efficiency Regulatory Upheaval From Balance Sheet to Treasury What's Fundamental regulatory changes are Operations, pressure to do more with less is driving adoption of practices Driving occurring globally, regionally & locally.

5 Both restrictive & liberalizing policies for greater efficiency and productivity Change? have direct effects on Treasury Market Conditions Mixed global economic outlook, divergent interest rates, and relaxed financial Markets call on Treasury to take a close look at liquidity, funding, and cash investment strategies 4. 1 Convergence of Treasury & Working Capital Management Treasurers today are partnering with the business and re-engineering their departments to create more value for the firm. Trading Models are changing in response to Treasury & Working Capital Functions are converging as companies are centralizing activities at In House evolving global supply chains Banks Treasuries must align their resources - People, Processes & Infrastructure with the changing trading model No 29%.

6 Enterprise-level efficiency models such as well- aligned Principal Trading Co & In House Bank Treasury infrastructures help drive balance sheet & P&L Directly Involved efficiency in WCM. 71%. (2012) 63%. Direct benefits include financial efficiency, (2009). improved liquidity management, better +8%. Yes management of FX, operational efficiency Source: Citi Treasury Diagnostics 5. Leveraging Convergence In House Banks are a catalyst for greater centralization from both functional and geographic perspectives. In House Bank Evolution of Scope Markets Emerging Merger with Pool Restricted Legacy Geographic Evolution Leadership, Principal Intercompany POBO ROBO Trading Netting, for Funding Investments, Emerging Principal &.

7 FX Markets Legacy SSC. Developed Markets Functional Evolution Core Treasury Construct Convergence with WCM Legal Entity Convergence at Enterprise Level Improving Treasury & banking technology is paving the way for POBO / ROBO Structures . Concurrently, IHBs and Principal Trading Companies / SSCs are converging to drive maximum efficiency for the enterprise. 6. 2 Re-engineering Banking Structures Changes in the operating business, market conditions, and centralization ( through the deployment of IHBs). call for many legacy banking Structures to be reassessed and made fit for purpose . Shifts in global supply chains changing sources and uses of cash Legacy notional On Behalf Of . pooling Structures solutions via IHB &.

8 May no longer be SEPA impact account efficient Structures Banking Structures Disparities in interest De-regulation in rates, WHT, etc. call Emerging Markets need to be re- for concentration provides new engineered to derive Structures to be opportunities maximum benefits reviewed 7. Example: Global Liquidity structure Evolution The banking structure evolves as the scope of the IHB expands. IHB. Finance IHB Evolution (Integrated with Company Business Units). Multi-bank, decentralized account Rationalized account/liquidity Structures Intercompany POBO and ROBO. structure ; manual liquidity and centralized liquidity management Netting (BUs transact in Third-party Netting (BUs only management functional currency with transact in functional other Bus) currency).

9 Many accounts across multiple currencies. Many accounts in multiple currencies Payments made from individual BU bank Fewer non-functional Fewer bank accounts Least bank accounts across multiple banks accounts. The fewer banks, the least currency bank accounts cash leakage . Fewer Bank Accounts and more Efficient Liquidity Management (Where Allowed by Regulations). IHB IHB IHB IHB. USD USD USD USD. USD Transaction Accounts Local Currency Header Accounts Local Currency Transaction Accounts Intercompany Loans (Term and Revolving) Multi-currency Intercompany Ledger (BU Virtual Account). Payments Collections Notional Pool 8. Example: China - Treasury Efficiency Driven By Deregulation 1 2 3 4 5. Functions Centralized In-House Internal Bank Accounts 2 4.

10 Bank Accounts Receivable Accounts Payable Shared Accounting 2 4 Service Interco Payments Center Interco Collections 1 3 Commissionaire Interco Netting structure Cash Visibility Centralized Re-invoicing Cash Pooling Bank Relationship Treasury Center Interco Funding Operations Degree of FX Management Decentralized Netting Center Centralization Interest Management Treasury Long-term Funding Treasury Flows Commercial Flows Treasury & Commercial Flows 1 RMB Financial 2 Simplification of 3 FCY Cross-Border 4 FCY POBO/ROBO & 5 Cross-border Guarantee Cross-border trade Physical Cash Pooling Netting Lending Settlement PBOC New SAFE New regulation PBOC Reform Projects SAFE Reform Project SAFE Reform Project regulation PBOC Reform Projects SAFE New regulation PBOC Cross-border FCY Cross-border FCY Cash Cross-border FCY RMB Cross-border announced that settlement is simplified Pooling started pilot run POBO/ROBO and Netting lending from China to RMB financial countrywide in Beijing and Shanghai started pilot run in overseas entity starts guarantee is no Cross-border RMB Makes it possible to Shanghai and Beijing pilot run in Shanghai longer subject settlement starts pilot include China entities Makes it possible to settle and Guangzhou to bank's run in cities such as into company's liquidity cross-border FCY flow in FCY Cross-border guarantee quota Shanghai and structure at a centralized manner.