Keppel Corporation, a Temasek subsidiary, is a Singapore listed S$18 billion conglomerate. Having over 200 subsidiaries operating in about 35 countries, the company is in the business of Offshore and Marine, Property and Infrastructure. It has an active central treasury servicing the funding, investing, borrowing and hedging needs of the entire group.
Obsolete: The group used a system built in-house. The system was semi-automated and required significant manual work which was largely done in a number of spread sheets. Further, the inhouse system was becoming technologically obsolescent and difficult to maintain.
Visibility: The system served only for the central treasury team, while the subsidiaries, which interacted actively, had no access to the system. Transaction requests from the subsidiaries were sent through e-mails and chats. Conversely, the central treasury did not have a view of the cash and exposure positions of the subsidiaries. In time of volatility, the top management had to make frantic phone calls to know the group’s total exposure to a particular bank.
Manual: Settlement of funds was manual. The central treasury frequently resorted to netted cash settlements to reduce transaction costs. Thus funds from a maturing FD of a subsidiary could be placed partly as a fresh deposit in another bank and partly used to pay a supplier of the subsidiary.
Limits: The system did not enforce limits on various dealing activities. In particular, alerts and exception reports on any breach was not automated.
Reporting: Period end reporting of financials was cumbersome, since the existing system did not allow for revaluation of monetary balances held in other currencies, accrue interest on loans and deposits, amortize premiums/discounts and mark to market traded investments. Much of this had to be done manually to comply with IAS 39 and FAS 133 regulations for fair value reporting.
Overcoming the initial challenges
POC: Keppel's RFP required the vendor to demonstrate a test case that had a complex scenario involving multiple netted settlements in various currencies and under various value dates. CSPL bid for the RFP in association with CSC Inc., the US based Fortune 500 IT systems integrator. After a couple of product demos, a 3-day workshop was organized at Keppel premises. The users entered a very complex set of deals in money market and FOREX modules and found the results
to their expectation.
Availability: Considering the sensitive nature of the data in the system, Keppel wanted a POC on high availability and disaster recovery features of the product. Organized at the HP labs in Singapore, the Keppel IT team performed a thorough hands-on evaluation of the high-availability features and also carried out a security assessment of the product. The Chella Soft architecture passed these tests successfully.
Elimination of bid-offer spreads through the 'in-house banking' feature
Better rate bargaining passed on to even very small subsidiaries
Elimination of transit float through netting off of cash settlements, resulting in reduction of
funds physically transferred
Lowering of bank charges due to netting of settlement obligations and fewer cash transfers
Automation of most work, eliminating the need for manual data entry, communication and Reconciliation
View of group-wide cash, deposits, borrowings and other exposures
Monitoring and control of group-wide counterparty risk
Tracking of exposures and trades against various limits set and to be alerted in real-time on
Availability of complete audit trail for various operations and authorizations performed in the system
Automation of cash flow computations
Auto-generation of accounting entries for multiple business units in their respective base
currencies, which flow seamlessly to their respective ERP systems through a GL interface
Generation of bank instructions through SWIFT or in other pre-specified formats without the
need for manual preparation
Reduction of errors through elimination of manual work
Promoting Strategic Role:
Central treasury providing tools to manage capital structure, cash management, liquidity management, stewardship of assets, foreign exchange management, interest rate risk management, corporate finance and debt and investment management
Today, Keppel has a fully automated Central Treasury, capable of handling many asset classes with absolute control over their operations, with very high visibility on exposures and installed in a high-tech data center with high availability.