Treasury and Trade Solutions

Treasury Americas

How Latin American Corporates Are Leveraging Inter-Regional

Flows with the United States

Treasury Americas | 2016 1

> Treasury AmericasHow Latin American Corporates Are Leveraging Inter-Regional Flows with the United StatesFor treasury, doing business between Latin America and the U.S. today is a lot like dancing the Tango — fancy foot is definitely required. In 2016, the economic landscape is expected to continue to be challenging for corporations across the region.Treasurers will be coping with the trials and tribulations of supporting their organizations in a challenging economic environment, with heightened risks, divergent growth and complex tax and regulatory changes. Adding to this challenge, the banking landscape has also been changing significantly.

Several current trends are top of mind for treasurers in this current environment. While the U.S. continues to be an economic powerhouse with gross domestic product (GDP) growth projected at around 2% for the year, Latin America’s GDP is expected to experience further decline. As growth slows with devaluation happening in most countries, companies in Latin America are finding efficiency benefits derived from their inter-regional flows, such as having an increased focus on exports to the U.S. and the rest of the world.

As these flows are mostly U.S. dollar-driven, companies are actively configuring resident/non-resident U.S. dollar accounts, liquidity structures and trade finance solutions to release internal liquidity and mitigate risks.

Importantly, these benefits may be realized by all companies — even if they do not have a presence in the U.S. A simple framework depicting these potential synergies is given in Figure 1.

> Contents

1. Treasury Americas

2. U.S. Dollar Accounts Domiciled in the U.S.

4. Trade Finance to Help Drive Working Capital

6. Optimizing Global Liquidity

8. Integrating North America Treasury Management Capabilities

Peter LangshawGlobal and Latin America Sector Sales Head, Treasury and Trade Solutions

Saulo FerrazLatin America Desk Head, Global Subsidiaries Group

Timanto MarimaSolution Sales - North America Inflows Head, Treasury and Trade Solutions

Integrating North America Treasury Management Capabilities

• Single regional technology platform and operating model

Optimizing Global Liquidity

• Improved account structures

• Efficient global cash concentration and FX

Trade Finance to Help Drive Working Capital

• Improved working capital ratios

• Unlocking internal liquidity

U.S. Dollar Accounts Domiciled in the U.S.

• Increase returns and mitigate risk

• Streamline payments and collections

Figure 1: “Treasury Americas” — A Framework

Companies without Presence in the U.S.

Companies with Presence

in the U.S.

2

> U.S. Dollar Accounts Domiciled in the U.S.Faced with significant currency devaluations across Latin America, many treasurers are responding by holding more liquidity and leveraging operating accounts offshore in U.S. Dollars. At the same time, Basel III is also reshaping how banks are managing their liabilities and the solutions offered. In this regard, a new array of structured deposits and strategic investments has evolved. Banks are combining and tailoring these different liquidity solutions to help maximize returns. Some of these key structures and potential benefits are summarized in Table 1.

Table 1: Combining Solutions to Optimize Yield While Offering Liquidity, Capital Preservation and Diversification

Solutions Objective How it worksEarnings Credit Rate (ECR) Enhances yield by offsetting with an

attractive implicit rate. Offers daily liquidity. Relevant when bank fees are material.

Automatically offsets bank fees by applying an attractive implicit rate to average balance levels in the accounts.

Interest-Bearing Accounts with Brackets

Standard operating accounts with interest rates based on average balance levels. Brackets allow dynamic balance-based pricing.

Pays interest based on average balance. When use with brackets, interest is defined daily by the end-of-day balance.

Money Market Time Deposits (MMTD)

Better return for medium-short term investable surplus.

Time Deposit with maturity date is defined by giving notice.

Sweeps and Core Deposit Sweeps (CDS)

Regular overnight sweep. CDS rewards stable balances with premium rates. Offers daily liquidity.

Balances are swept end-of-day and return to the account the next morning. Premium rates are paid on CDS balances committed with stability.

Time Deposits Enhances yield for term deposits. Term Liquidity.

Maturities from overnight to five years. Competitive yields.

Money Market Funds Diversifies Risk with a portfolio of high-quality, short-term fixed income debt securities. Offers daily liquidity.

Investments into numerous Domestic and International Funds, with automated account settlement.

A new array of structured deposits and strategic investments has evolved.

Banks are combining and tailoring these different liquidity solutions to help maximize returns.

Treasury Americas | 20164 5

Day0-5

Supplier

1. Purchase Order

2. Goods/Service3. Invoice

4. Approved Invoices

Day5

Supplier

5. Communicate Receivables

6b. Discount offered

6a. Discount offered

Day6

Buyer

Supplier

7b. Settlement minus discount

Dynamic Discounting

7a. Attractive offers accepted

What are the Potential Benefi ts?

Potential Benefi ts to the Buyer

• Maximize return on cash via unique “Price Discovery” marketplace-based approach

• Increase gross margin and EBITDA by reducing COGS• Reduce supply chain risk• No licensing fees and relatively fast implementation• Fully integrated solution to complement Supplier Finance

Potential Benefi ts to the Supplier

• Improve cash fl ow / Reduced DSO • Relatively lost cost source of fi nancing• Access early-payment on demand; no paperwork

or contracts• No fees for suppliers to participate; Easy enrollment process• Improved visibility into invoice status

Buyer

Dynamic Discounting

Buyer

Dynamic Discounting

> Trade Finance to Help Drive Working CapitalTrade flows are also on the radar of treasurers. Presently, there are approximately $3 trillion1 USD balances in trade flows for goods and services throughout the Americas regionally. With the increased focus on exports to the U.S., pre-export financing has been an area of focus to help provide valuable funding for the exporters. Similarly, import financing helps protect importers from exchange rate volatility and serves as a source of funding at a time when traditional financing sources are becoming challenged.

We are seeing trade finance programs support the supply chain in Latin America and the U.S. through cross-border solutions. This is important because this has given rise to new sources of funding and has helped increase returns for the whole supply chain. New supply finance programs such as Dynamic Discounting are becoming more frequently adopted in the U.S. and are now starting to migrate to other regions. (Figure 2 provides more details about Dynamic Discounting.)

What is important is that these techniques are in many cases able to be integrated into the company’s enterprise resource planning (ERP) system. Having a global bank that offers a single technology platform for both regions can be equally important.

With the increased focus on exports to the U.S., pre-export financing has been an area of focus to help provide valuable funding for the exporters.

Figure 2: Dynamic Discounting — A Paradigm Shift

1Source: World Trade Organization (WTO) International Trade Statistics

Treasury Americas | 2016 7

> Optimizing Global LiquidityTreasurers are increasingly taking steps to improve their liquidity management dynamically. Aside from unlocking liquidity from trade flows, companies have been focusing on establishing more efficient treasury structures between Latin America and the U.S. Due to varying regulations and practices across these markets, treasurers have to take specialized considerations into account when consolidating Latin American and North American liquidity structures. Indeed, there is a growing trend toward USD offshore pooling for liberal and semi-restricted markets.

For instance, in Mexico, which has a liberal regulatory structure that allows free cross-border sweeps and dollar accounts, pooling liquidity in the U.S. or in London is available and some global banks are providing automatic concentration solutions. Other solutions have been developed to maximize interest in the more restricted countries. Figure 3 gives a summary of how to leverage and effectively combine the two regions from a liquidity standpoint.

• Liberal: Possible structure for countries where both LCY and USD are freely transferable (e.g. Mexico) • Semi-restricted: Possible structure for countries where LCY is restricted, but USD is transferable with differing restrictions (e.g. Colombia) • Restricted: Possible structure for countries that restrict transferability of both LCY and USD (e.g. Argentina)

(Note: This information is being provided for general awareness, and does not constitute legal or tax advice.)

USD Resident

USD Resident

USD Resident

USD Resident

Operating a/c LCY

Resident

USD Non-res

Header a/c LCY

Resident

Header a/c USD

Resident

Operating a/c LCY

Resident

Operating a/c USD

Resident

Operating a/c USD

Resident

Manual or Automated

Investments

Manual or Automated

Investments

Manual or Automated

Investments

Manual Investments

Operating a/c LCY

Resident

USD Non-res

Header a/c LCY

Resident

Header a/c USD

Resident

Operating a/c LCY

Resident

Operating a/c USD

Resident

Operating a/c USD

Resident

Operating a/c USD

Resident

Operating a/c LCY

Resident

Header a/c LCY

Resident

Operating a/c LCY

Resident

Liberal Semi-restricted Restricted

Manual FX

Manual FX

Interest Optimize

In-Country Structures

Figure 3: Integrating Liquidity Management Across AmericasSolutions vary by market complexity. A combination of global (or regional) and local execution is commonplace. Often, USD is managed centrally and integrated with global funding and investments.

Concentration Center (e.g. New York)

Manual or Automated InvestmentsIn Mexico, pooling liquidity in the U.S. or in London is available and some global banks are providing

automatic concentration solutions.

Treasury Americas | 20168 9

> Integrating North America Treasury Management Capabilities Latin American companies have been rapidly expanding their businesses in North America over the last decades. Not only as an exporter to the United States, but with strong and effective local operations. Latin American companies are now focused on bringing efficiencies from U.S. banking market capabilities to help improve the day-to-day financial management, integrating its local operations in North America with existing regional or parent-level treasury centers. As a result, the most appropriate approach may be a combination of local support in North America with a Global platform which understands the efficiencies and characteristics of each market.

Partnering for Success Latin America Treasurers are closely evaluating whether or not they have the right banking partner in place. This is particularly important in light of the fact that the banking environment has been in flux. More recently, a number of global banks have been scaling back or withdrawing their corporate banking presence due to high infrastructure costs and regulatory requirements across Latin America. Making things even more challenging, many regional banks are unable to provide an integrated, holistic solution to support working capital goals throughout the Americas, resulting in fragmented approaches that make it difficult to achieve cost reductions and achieve proper controls. It is little wonder that treasurers in the region may be dealing with inconsistencies in treasury management processes, disjointed cash visibility, fragmented connectivity, and face higher costs of doing business from having multiple, complex banking partnerships.

Thus, it is important to choose the right banking partner that can provide fully integrated solutions across the Americas. All in all, today’s smart treasury organizations are finding better ways to dance the Tango and more effectively do business between Latin America and the U.S., even in the face of existing challenges.

“Treasury Americas” – Key Citi Contacts:

All in all, today’s smart treasury organizations are finding better ways to dance the Tango and more effectively do business between Latin America and the U.S., even in the face of existing challenges.

Latin America Desk in New YorkSaulo Ferraz, Latin America Desk Head, Global Subsidiaries Group Email: saulo.ferraz@citi.com Phone: +1 (212) 816-8372

North AmericaOmar Hafeez, Regional Head, Global Subsidiaries Group Email: omar.hafeez@citi.com Phone: +1 (212) 816-3838

Kevin Tissot, Regional Sales Head, Treasury and Trade Solutions Email: kevin.tissot@citi.com Phone: +1 (212) 816-5956

Timanto Marima, Solution Sales, North America Inflows Head, Treasury and Trade Solutions Email: timanto.marima@citi.com Phone:+1 (212) 816-5627

Latin America Oscar Mazza, Regional Sales Head, Treasury and Trade Solutions Email: oscar.a.mazza@citi.com Phone: +1 (305) 347-1336

Peter Langshaw, Global and Latin America EPC and Industrials Sector Sales Head, Treasury and Trade Solutions Email: peter.langshaw@citi.com Phone: +1 (305) 420-4268

Gabriel Kirestian, TMT and BC&H Sector Sales Head, Treasury and Trade Solutions Email: gabriel.kirestian@citi.com Phone: +1 (305) 679-5160

These materials are provided for educational and illustrative purposes only and not as a solicitation by Citi for any particular product or service. Furthermore, although the information contained herein is believed to be reliable, it does not constitute legal, investment or accounting advice and Citi makes no representation or warranty as to the accuracy or completeness of any information contained herein or otherwise provided by it.

© 2016 Citibank, N.A. All rights reserved. Citi and Arc Design is a registered service mark of Citigroup Inc.

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