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Enhancing Project
Success for Innovation,
Efficiency and
Competitiveness
Featuring Michael Guralnick, Global Head, Client Sales Management, Global Transaction
Services, Citi and Swati Mitra, EMEA Region Head, Corporates, Client Sales Management,
Global Transaction Services, Citi

A
s multinationals accelerate their strategies to further
globalisation and expansion into the emerging markets,
they continue to invest in major capital expenditure
projects that are key to establishing and building out local
manufacturing and production facilities. These critical
investment projects are designed to enhance competitiveness by
improving productivity, optimising cash generation, and driving
increased cost-effectiveness. In the highly competitive global
business environment every company needs to prioritise its
investments, mitigate project risk and ensure that financing is
aligned with forecasted returns. As such, Citi’s Global Transaction
Services business is a key partner to its clients throughout the
project lifecycle - from development, construction to operational
phases - providing customised solutions to assist its partners in
ensuring a successful outcome of their investment. This article
looks at some of the techniques in which treasurers and their
teams, corporate and/or project finance managers can leverage
innovative transaction banking services to support capital projects
whilst remaining aligned with the company’s balance sheet and
working capital objectives.
Changing influences in project selection,
financing and ongoing cash management
The role of treasury has changed considerably since the global
financial crisis. As the events of late 2008 and early 2009 unfolded,
treasury’s role became pivotal in ensuring sufficient working capital
during a period of cash flow and income volatility. CEOs and CFOs
became much more cognisant about recognising treasury’s value in

Case Study 1. Securing Long-Term Capital at Dubai Electricity and Water Authority

DEWA is a 100%-owned entity of the Government of Dubai. The principal
activities of DEWA comprise water desalination and distribution, and the
generation and transmission of electricity throughout the Emirate of Dubai.
The challenge
DEWA was undergoing massive expansion to triple its electricity generation
and water desalinisation capacity, with suppliers in Italy, France and Germany.
The company needed to source cost-effective external financing in the
summer of 2008, a time when access to the global financial markets was
constrained. Over the months that followed, financing conditions deteriorated
further, with the bank, bond, securitisation and Islamic finance markets
effectively closed to new borrowings. Furthermore, DEWA required funding
with an unprecedented long tenor, right at a time when investors were
unwilling to fund long-term borrowing.
The solution
Citi was mandated as a lead arranger and overall deal co-ordinator,
and sought the support of export credit agencies (ECAs) in structuring
a long-term financing solution. The result was a US$1bn financing
arrangement with a tenor of 13 years (including the construction
period), supported by comprehensive guarantees from three European
ECAs.
The result
DEWA was able to achieve extremely competitive pricing and a 13-
year tenor in a risk-averse environment. The solution also enhanced
the reputation of Dubai, as the tenor of previous debt structures had
not extended beyond 10 years. The EUR516m Hermes tranche, which
had 95% cover, was the largest approved for Dubai to date.

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insight
insight

Project Phases : Key Risks and Challenges

Figure 1. Key Project Phases. Key Risks and Challenges
“Following an extended period of constrained investment,
companies are now reinvigorating their investment activities in
their businesses to support growth, maximise efficiency, serve
their customers better and ensure their long-term
competitiveness. However, the new paradigm of world
economic growth is seeing companies accelerating expansion
in new regions, often unfamiliar regions, to leverage favourable
conditions for supply, construction, production and demand,
which creates new risks as well as new opportunities. Citi
combines its global footprint, local expertise with its breadth
of trade services, trade finance, agency and trust and cash
management services to provide financing, risk mitigation and
working capital solutions”
Michael Guralnick,
Global Head, Client Sales Management, Citi

managing market, counterparty, sovereign
and concentration risk.
Capital projects typically do not have a
single owner within a company, with
project finance, internal venture capital,
the commercial business, corporate
finance, treasury and strategy groups all
represented. Although the treasury
implications of capital projects have
always been considerable, financing costs
and liquidity implications have become
more relevant in the overall budget and
cost benefit analysis given the shifts in
bank funding and capital markets.
Source: Citi
Treasurers are therefore now playing a
more leading role on project committees
to align project risk mitigation, financing
and operating cash requirements with the
wider strategic agenda.
As figure 1 illustrates, every project goes
through a series of phases from inception
through to production. Although the
order, materiality and specific activities
involved in each phase will differ across
projects, each phase brings a changing
spectrum of risks, financing and cash flow
requirements. Each element of financing,
liquidity and risk management is
frequently addressed on a transaction by
transaction basis. However, as financing
costs have increased, risks have become
more apparent and market access has
become less assured, this approach could
bring considerable risks. In contrast, by
working with a bank with the right
geographic footprint, breadth of
transaction banking solutions, and ability
to design holistic solutions across the
project lifecycle on a consultative basis,
treasurers are in a position to anticipate,
design and deliver the right financial
solutions to manage risk and secure
appropriate financing within budgets and
time scales.

Case Study 2. Export Finance Solution at Peru LNG

Peru LNG is the leading liquefied natural gas facility in Peru and the largest
direct foreign investment in Peruvian history. The project company is a
partnership between Hunt Oil Company (US), SK Energy (South Korea), Repsol
YPF (Spain), and Marubeni (Japan).
The challenge
The Peru LNG project is the largest direct foreign investment in the country’s
history, with a total project cost estimated at US$3.9bn. The landmark
investment consisted of the construction of a natural gas liquefaction plant
170kms south of Lima, including marine loading facilities. The transaction
included onshore and offshore account solutions, requiring a provider of
corporate trust services with a unique blend of experience, global reach,
innovative ideas and superior service.
The solution
Citi acted as the onshore and offshore collateral agent, depositary and
account trustee. The project financing comprised bank loans and a bond
issue in the Peruvian market. The complex structure required the waterfall
administration of onshore and offshore accounts, and a security package
including multiple assets, trusts, accounts, inventory, equipment and equity.
Closing and disbursement requirements were no less sophisticated, requiring
registration in Peru and the US, cross-border collateral management for the
initial disbursement, and processing large value transfers across the lenders’
and borrower’s onshore and offshore accounts within a tight time frame.
Citi’s administrative responsibilities included execution of payments,
management of the electronic platform to control onshore and offshore
accounts, and co-ordination with the local bank.
The result
The settlement and execution of the transaction proved very successful for the
sponsors and this landmark deal was widely recognised by specialised
publications and won a number of awards.

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GTS Solutions for Project Phases

well as putting in place performance

Figure 2. Global Transaction Services Solutions for Capital Projects guarantees to ensure delivery.
There is a variety of transaction
banking solutions available to support
the project development phase. Supplier
1. Development Phase financing programmes can provide
— Bid Bonds Valuation &
Screening
Permitting
valuable financial support to suppliers
— Export LCs and Bills
— Receivable Financing and contractors whilst enhancing the
— Export Credit Agency Project Approval company’s own working capital position.
Financing (ECA) Identif ication Process
— Escrow Agent Services Trade instruments such as export letters
— Investment Options f or 2. Construction Phase of credit reduce counterparty credit risk
Cash Production YOUR
Realisation of
COMPANY
Optimisation, approved and ensure a documented process for the
Improvement project — Perf ormance Bonds
& EBITDA — Escrow Accounts delivery of goods and services. A vitally
3. Operations Phase Generation — ECA
important consideration at this stage of a
— Supplier Finance — Account Bank Services
Plant Integration of — Security Trustee project is to secure supplier and
— Trade Services Operations Acquisitions — Note Trustee & Paying
— Liquidity Management Capital contractor performance commitments in
Agent
— Escrow Accounts Expenditure
— Prepaid (specif ic order to support project time scales and
— Note Trustee & Paying applications in some
Agent countries) budget. Consequently, Citi provides
— CitiDirect (electronic
banking) comprehensive solutions for issuing bid
— Treasury Vision (data
aggregation and analytics and performance bonds/guarantees,
tool)
Source: Citi including process automation through
CitiDirect, and employs specialist teams
to ensure that instruments are tailored to
Phase I Development the budget. In addition, ensuring cost meet the individual needs of each
During the initial planning stages of the predictability is an important project.
project, issues such as project feasibility, consideration as part of the cost benefit The project development phase also
budget and cost benefit analysis are analysis process. Furthermore, project introduces financing needs which can be
typically considered, alongside committees need to mitigate their supported through internal cash, bank
operational decisions such as location, supplier and contractor risks up-front, funding or as we have seen in the last
government/ regulator permissions and which includes ensuring their ongoing few years, via export credit agency
licensing. For many companies, project viability, without compromising the financed programmes. As the credit
finance costs are a material element in company’s working capital position, as markets have shrunk, export credit

Case Study 3. Philips – Supplier Financing Programme

Philips is a diversified Health and Well-being company. The company is a
world leader in healthcare, lifestyle and lighting, with subsidiaries globally.
The challenge
At the height of the economic crisis, it was critical for Philips’ suppliers to
have access to funding to ensure the continuity of supplies to Philips, thereby
reducing Philips’ risk exposure. This also presented an opportunity for Philips
to address their working capital needs. Whilst the initial foray was Europe,
Philips has the vision to ultimately roll out the programme globally. With scale
in mind, automation of the communication channels was key for Philips as
they wanted to maintain a single interface for AP and Treasury. Philips
wanted a partner who could deliver a global solution as they expanded the
scope of the initial pilot in Europe and had the experience and track record of
on-boarding a diverse portfolio of suppliers across regions.
The solution
Philips appointed Citi as its Supply Chain Finance banking partner to provide
financing to their global suppliers selling to its European purchasing
subsidiaries. Citi’s Supply Chain solution enabled through a web based
application of CitiConnect allows Philips to upload approved invoices for their
suppliers in multiple currencies through a host-to host connection. The
suppliers have automated or optional early payment flexibility. They gain
complete, detailed payment transparency. No Citi accounts needed to be
opened by suppliers under the programme.
The result
Philips has been able to support to their supply chain whilst gaining terms
extension. This has allowed them to strengthen their supply base and improve
their cash conversion cycles resulting in a significant cash flow improvement.
Philips’ suppliers have access to liquidity at competitive rates and improved
cash flows, which they would not otherwise have had access to in a tough
economic environment. Additionally, they have been able to conserve their
credit capacity for addressing additional business needs and also in some
cases increasing sales to Philips.
Both Philips and suppliers have been able to benefit from Citi’s Supply
Chain platform, CitiConnect. The platform improves visibility throughout the
invoice approval and payment process and offers multi-currency payment
capabilities.

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finance has become an increasingly
important way to guarantee bank
finance, supplier finance, and/or provide
direct loans in a cost-effective way,
transforming usually non-investment
grade borrowers to AAA / AA assets.
These financing arrangements, whether
tied (i.e., directly linked to the
procurement of goods) or untied (i.e.,
linked to development or promoting
foreign direct investment), provide a
diversified source of funding without
affecting bank loans. As complex
structures, with diverse onshore and
offshore elements and sophisticated
security, registration and disbursement
requirements, export agency financing
requires an experienced banking partner
with considerable breadth and depth of
services.
Project finance raised at the start of
the project, which may not be required
immediately, can be invested in term
deposits with maturities aligned with
project deliverables when payments are
due, or in money market funds.
Phase 2 Construction
Many of the corporate financing needs
during the construction phase of a capital
project are an extension of those required
during the development phase, such as the
need for performance bonds, escrow
services and other risk management
solutions. The construction phase is an
intense period for project-related cash
flow, such as payroll and supplier
payments, which may require offshore
project accounts and comprehensive
payment services that take into account
country-specific regulations and cross-
border complexities.
“In addition to providing considerable
local and cross-border payment expertise,"
notes Michael Guralnick, "Citi provides
WorldLink Payment Services to clients. This
is a convenient, multicurrency payment
solution that eliminates the need for
foreign currency accounts, with the
associated costs, potential for ‘trapped’
cash and time-consuming reconciliation.
The service is available in over 100
countries and 135 currencies, covering a
wide variety of payment types, both
electronic and paperbased, enabling
6 TMI | Issue 186
companies to respect the payment
conventions in their countries of
operation without creating process
complexity or inefficiency.”
Phase 3 Operations
Once the project has reached live
operation, companies need to meet the
ongoing working capital needs and
manage the expectations of stakeholders.
While the requirements are diverse, they
are inter-related, emphasising the
importance of an integrated cash and
liquidity management approach. For
example, in addition to providing payment
and collection services, companies need
local and head office visibility over cash,
using a tool such as Citi’s TreasuryVision,
the ability to invest, enabled by CitiDirect,
and the flexibility to centralise or
repatriate cash, using cash pooling and
other liquidity management solutions.
Maintaining the resilience of the supply
chain remains an ongoing requirement, so
establishing solutions such as supplier
financing become more important, as
illustrated by Philips in Case Study 3. Trade
services solutions such as letters of credit,
both for imports and exports, may also be
significant in managing counterparty risk.
A comprehensive approach
The financing, liquidity and supply chain
requirements of major capital projects
across the globe are all critical
components in ensuring project success
throughout the various development,
construction and operational stages.
Every project has diverse requirements
depending on its nature, location,
financing and cash flow dynamics. By
working with a global partner with on-
the-ground expertise and ability to
design customised and integrated
solutions, companies can meet their
financing, risk mitigation and ongoing
working capital objectives taking into
account the needs of the range of
stakeholders. As Swati Mitra concludes,
“Citi has invested significantly in our
solutions and expertise to support the
capital projects that enable our clients to
become more efficient, innovative and
competitive. By providing integrated
solutions that address financing,
insight
insight
“Project committees recognise the importance of securing
project financing at an acceptable cost, but there are other
financial considerations that are critical in ensuring project
success. Supplier, contract and employee payments need to be
made correctly and promptly every time, to avoid project
delays, which can be more difficult in countries where the
company does not have established finance teams and
payments infrastructure. Leveraging shared service centres for
commercial payments and payroll, as well as working with a
banking partner experienced in processing international
payments, is a valuable means of avoiding the risk of error
and fraud, and ensuring that payments are conducted
efficiently and cost-effectively.”
Swati Mitra, EMEA Region Head, Corporates,
Client Sales Management, Global Transaction Services, Citi
counterparty, supply chain, liquidity,
payments and location-related risks, we
ensure timely and successful project
execution and ongoing cash flow
management. Citi sees itself as a
strategic partner to clients in the world
of projects.” ■
Michael Guralnick
Global Head, Client Sales
Management, Global
Transaction Services, Citi
Michael has been with Citi for 25 years, and has global
responsibility for Treasury & Trade Solutions (TTS) Client Sales
Management (CSM) team and part of Citi’s Global Transaction
Services (GTS) division. His principal focus is to lead and direct
the global strategies for sales origination and cross-sell for
Global Corporate Bank parent companies, and their subsidiaries,
focusing primarily on Corporate, Non-Bank FI and Public
Sectors clients. The global CSM team’s mission is to ensure our
clients are provided with innovative solutions to assist them in
meeting their global, regional and local treasury management,
working capital and supply chain financing objectives.
Swati Mitra
EMEA Region Head, Corporates,
Client Sales Management. Global
Transaction Services, Citi
Swati is the EMEA Region Head for Client
Sales Management for corporate clients.
Prior to the current role, Swati had
responsibility for leading and managing corporate clients in the
Technology, Media, Telecommunications and Consumer &
Healthcare sectors in GTS Client Sales Management team
EMEA. Swati joined Citi in 1993 and has worked in four
markets - Australia, Singapore, Hong Kong and United Kingdom.
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