Telenor Interview: Mitigating Risk and Short-term Investing
With operations around the world, 15 main subsidiaries and a brief to manage treasury, and specifically treasury risk, across the whole Telenor group, Tone Merten Hansen is a busy person. In common with a lot of corporate treasurers, she has a lot on her mind at the moment worrying about foreign exchange (FX), liquidity risk, bank and counterparty risk, not to mention the on-going eurozone crisis.
“The immediate risk I see for Telenor is banking counterparty risk because we have a lot of cash in Asia that we need to be able to reliably get out,” explains Hansen, while highlighting Telenor’s major Asian markets in Thailand, Malaysia, Bangladesh, Pakistan and India, where it’s mobile business is particularly strong. The fixed-line element of Telenor’s telco business is mainly restricted to its home Nordic markets.
“I am also worried about liquidity risk at the moment, but that is more to do with the general economic situation, with significant downward pressure coming from the eurozone crisis and fears of a widespread slowdown.”
In order to mitigate bank/counterparty, and other risks, Telenor now plan for how it can move assets out of a bank if it has to and is already looking at its13 core banks more closely than it has ever done before. This approach is allied to keeping a tight watch, almost daily, on cash flow forecasting in the mobile and telco group. The corporation’s core banks are made up of a mixture of Nordic banks, Asian institutions and big US multinational banks.
“We also use credit rating agencies (CRAs) to monitor risk but not solely,” says Hansen, before explaining that “credit default swaps [CDS] are a useful risk measurement tool as well because they illustrate how the market perceives a bank.”
“We look at all these factors, and more, since the great crash of 2008 which taught me and Telenor a great many lessons about how to mitigate risk,” adds Hansen, who took over as the senior corporate treasurer at Telenor just as the year was turning from 2007 to 2008 and the credit crunch was brewing. Understandably, she admits that “my time here has been spent tightly focused on risk”, her evaluation to the top job coinciding with the banking crisis and beyond.
Personal History and Technology
Hansen has a background in banking, having started out in the late 1990s at Citibank in Luxembourg as a treasury advisor, before moving back to her home country of Norway in 2004 to Telenor. She became an assistant treasurer in the Oslo headquarters with responsibility for looking after the front, middle and back offices, particularly the technology systems.
Telenor uses a treasury management system (TMS) from SunGard and runs a very centralised treasury in Oslo, she explains, but the local units in Asia are, however, still quite manual with less reliance on technology. This is something Hansen wants to change in the future, commenting that: “Long-term it’d be good to have a fully global TMS with access to real-time data, giving us better exposure control via improved reporting and oversight. I believe it is worth the investment if you do a thorough cost versus benefit analysis, but we’re still a few years away from implementing such a global system yet. Additionally, there is always plenty of upheaval when overhauling tech systems, so good planning will be crucial for any such future project.”
Lessons Learnt After the 2008 Crash
Financial flexibility is critical for any treasury, and the banking crisis of 2008 and volatile market situation since, have just reiterated this more strongly for Hansen. “Good cash forecasting is crucial too,” she adds, “although it always has been, of course. It’s just more important than it has ever been, which is why I am thankful that Telenor’s subsidiaries and local units around the world are good at it.
Unlike some corporations, Telenor didn’t move to a single banking partner or concentrate on just a few banks before the crash of 2008, so there has been no change in the number of core banks (13) that the firm uses post-crash, just an increased focus upon them and assessing risk within all areas of its financial supply chain.
According to Hansen, Telenor is quite conservative when it comes to short-term investing and certainly does not run the operation as a profit centre, focusing instead on its core business. “Maximum yield is not our aim, reducing risk is, which is why we like to keep it fairly simple, using bank deposits and short-term certificates in the main.”
Any short-term certificates used by Telenor’s treasury have to be Norwegian and are therefore rated triple A, due to the strength of Norway and its famous oil-backed sovereign wealth fund. As Hansen comments, “It is strange when I come south to mainland Europe as it is all doom and gloom at the moment, but it is not like that in Norway. Of course, any global crisis resulting from the eurozone’s problems will have an impact in Norway so we certainly still take it into account, but it worth stressing that Norway is somewhat different due to its oil wealth. The country’s strength also affects my calculations when examining investment options.”
The spectre of increased post-crash regulation, covering money market funds (MMFs) and other investment instruments does not worry Hansen too much because Telenor is so cautious in its investments, but it something that she is keeping an eye on, allied to possible treasury impacts emanating from the Basel III capital adequacy rules, which may further restrict bank funding and perhaps even play into the bank and counterparty risks she raised earlier.
It is certainly a tough time to be a treasurer but that has been the case ever since Hansen rose to the top job at Telenor in the teeth of the 2008 crisis, navigating which she describes as the hardest professional challenge she has had to face in her career.
In terms of what has changed most over the course of her career in treasury since coming into the field in 2004, Hansen cites the impact of the crash. “The daily operational risks of treasury, covering liquidity, FX and so forth are a given and, while important, they have always been there. What has changed post-crash is that you now have to look at supply chain and strategic risks.”
Working capital management will also be getting a tighter focus from Hansen due to the worsening economic situation in the world today, with even some Asian countries such as India now slowing down. In common with many other treasurers, a cautious approach seems warranted at this time.