Quarterly - local CFA Societies

FinancialSteering throughturbulence anduncertainty…Veteran banker Eric Pascal, CFA, CMA,highlights 5 liquidity gates that goodchief financial officers guard.Liquidity is the primary issue facing most companies in times of financialturbulence such as what the world faces today. Eric Pascal, a veteranbanker and founding member of the CFA Singapore Senior MembersCommittee, draws on lessons from his 25 years in the industry andshares how companies can protect their liquidity as well as ensure asound capital structure during such times.As I write this, I think of thefinancial crisis in Sep 1998 andalmost exactly 10 years later inSep 2008.The first crisis was called the AsianCurrency Crisis, spurred by thefailure of LTCM and the secondthe Banking Liquidity/Credit crisisspurred by the failure of LehmanBrothers.In Nov 1998, Caterpillar (which hadconsistently been an A2/A-ratedheavy equipment manufacturer inthe US) had bonds trading at Libor+ 325. They had never paid morethan Libor + 20-50.It would have been a hard pill toswallow if one had needed torefinance in late 1998. So how doesone avoid such sticky situations?Fund Raising• Access tomedium termnotesDebt MaturityProfile• Lengthen• DistributeProtect CashFlow• Futures• Long termcontracts• Fees• Interest rates• LoanextensionsBuy CheapProtect Capital• Buy cheapequipment• Acquirecompanies atlowvaluations• Off-balancesheet financingUndoubtedly this will happenagain. In both cases, the globalfinancial markets reacted witha significant drop in liquidity,bank lines, with credit generallyunavailable and at the very leastmuch more expensive.During market anomalies, the fivethings to look at are: a company’sdebt maturity profile, how acompany protects its cash flowand capital, its access to fundsand opportunities to buy cheap.Page9