Treasuries in the infrastructure, real estate and building Materials (IRB) sector1 operate against an extremely demanding backdrop. Globally dispersed operations, multiple project-specific operating entities, high entity turnover and multiple diverse regulatory environments are just a few of the challenges they face. Nevertheless, as Mark Eastwood, Global Sector Head – Infrastructure, Real Estate and Building Materials (IRB), Global Liquidity and Cash Management at HSBC explains, there are various ways in which leading IRB treasuries are successfully managing despite these conditions.

    The IRB sector consists of multiple interlinked and interdependent sub-sectors that have major economic significance. A recent report by PWC and Oxford Economics2 estimates that global infrastructure spending will hit USD9 trillion per year by 2025, up from USD4 trillion in 2012. In view of the acknowledged link between infrastructure spending and GDP growth3, this increase potentially represents a major global economic stimulus.

    There are a number of macro factors providing tailwinds and helping to drive this projected rise in infrastructure spending. Increasing population (including a rising middle class element), urbanisation growth and demand for faster transportation are just some examples, plus wider westward investment flow from Asia and the Middle East4. Internationalisation of the RMB and China’s Belt and Road Initiative (BRI) are clearly also important factors here. For instance, the broad range of markets connected by BRI, coupled with an expanding middle class population and increasing life expectancy, is driving investment demand for efficient transportation systems.

    The distribution of the projects driven by these factors is not only extremely diverse, it is also increasingly focused on emerging markets and those considered developing economies. (For example, India is currently building 30km of roads per day5.) This ongoing transition is a major issue for IRB treasuries, as some of the jurisdictions involved will be relatively unfamiliar in terms of payment infrastructure, regulation and business practices. In this demanding environment, a trusted banking partner with an extensive geographic footprint becomes ever more fundamental to ongoing success.

    Funding, payments and cash management

    In addition to conglomerates, this geographic dispersion of projects poses similar challenges to the four other IRB sub-sectors. These include maintaining visibility and control over funding and defunding requirements. Then in some regions there are practicalities such as payroll, where (given the high number of expatriate blue collar workers typically involved in construction projects) the practice can often be for employees to be paid with cheques or physical cash rather than by bank transfer.

    The interconnected nature of the sub-sectors within the IRB sector can have major ramifications for treasury. For instance, given the common accounting practice of realising expected project profits upfront, any delay in the earlier phases of a project can potentially lead to cash flow implications for a corporation not due to be involved until the later phases. While this contractor may have no responsibility for the delay, it may find that bank appetite to continue funding the unexpected cash flow gap in the meantime is reduced. Therefore, maintaining the tightest possible control over corporate cash and liquidity management is critical, so days payable and days sales outstanding (DPO and DSO) need to be highly optimised to maintain tight control over working capital levels.

    IRB sector treasuries’ ability to deliver under these conditions is heavily influenced by their choice of bank. Global connectivity, coupled with deep domestic capabilities, are key themes for the wider IRB sector, so a suitable banking partner will need to have a global physical presence coupled with the commensurate global connectivity. Furthermore, in view of the potential cash flow impact of delays elsewhere in the project chain, that bank will also need to have a long term relationship-based approach and close understanding of the client DNA. Finally, major corporations in the construction space will have multiple projects around the globe at various stages of maturity. At any one time this results in a range of differing funding and working capital requirements. Covering all these funding bases globally requires a partner with a strong balance sheet.

    Dealing with geography

    As alluded to above, infrastructure and construction companies are challenged by the diverse geographies of their operations, but also by the shifting nature of those geographies. For instance, with a significant diversification drive underway across the traditional oil-rich Gulf states, investment in infrastructure and real estate is focusing not just on the home market but also westwards into Europe and North America. Therefore, substantial amounts of capital are moving from East to West into real estate or funding infrastructure projects – in addition to the impetus created by China’s BRI already mentioned6.

    Given the global nature of operations for clients in this growth sector, it is perhaps unsurprising that M&A activity also throws up some major cross-border challenges, especially where European or North American corporations are buying emerging market assets. Certain aspects of these deals – such as combining treasury operations, transitioning authorised signatories and organising new bank account and liquidity management structures – can be a major headache for treasuries who may be several time zones away from the asset being acquired. Again, choice of banking partner(s) can make a difference here, not just in terms of network coverage, but also in agility and the ability to focus and coordinate activity and coverage to a single local point of contact for treasury, often under time-pressured conditions. This ensures that treasury has a comprehensive picture as structures are brought together, with the ability to combine business as usual with future-proofing the expanding entity.

    Getting the show on the road – quickly

    From initial bid bonds and funding stages, many construction companies establish project-specific entities, or joint ventures (JV), that exist only for as long as the project itself lasts. There is often considerable time pressure to get these entities up and running, both in terms of opening bank accounts, as well as connecting those accounts to corporate ERP and/or treasury systems from an operational standpoint. KYC and AML are key tasks associated with any bank account establishment: the ability of banking partners to manage onboarding robustly and expeditiously can be a differentiator and ease concerns over project deadlines.

    The capital-intensive nature of the construction sector, together with the wide geographic footprint of infrastructure projects and construction, means that corporates in the wider IRB sector are often heavily multi-banked. The natural consequence of this is that treasury has to contend with multiple proprietary banking channels, disparate ERP systems and scarce IT resources on a day-to-day basis. Apart from making the resulting workflow less efficient, this situation also increases the risk of errors. It is a cliché, but having generally grown by acquisition and often operating JVs, decision-making for central treasury is heavily underpinned by maintaining global visibility and control of cash. While some proprietary banks channels and third-party providers can offer aggregating services, continued growth simply exacerbates the challenge. While initially involving some heavy lifting, the implementation of global architecture, often using SWIFT for connectivity, helps to standardise and ease the burden when adding new projects to the existing central treasury dashboard.

    Many treasuries in this sector operate in a highly demanding environment

    Banks offering support from certified ERP and SWIFT specialists add considerable value in helping to navigate this landscape. Given the highly geographically fragmented nature of many projects, a critical distinction here is that these specialists need to be available in-country, providing global knowledge and support in the local language.

    Joining the dots

    The complex nature of these businesses, plus their equally complex and interlinked financial requirements throw up an additional set of hurdles for their banks. Apart from day-to-day cash and liquidity management, these companies will often also require various products/services throughout the course of an infrastructure project lifecycle, such as bid bonds, project finance and M&A/acquisition finance. Their currency needs can also be complex. For instance, a company headquartered in Europe might have EUR as its functional currency, but most of its project costs in USD or local currency, while potentially also having multiple receivables currencies, including some that might be subject to currency controls.

    This broad needs spectrum that traverses multiple disciplines within a bank puts a heavy onus on any bank to deliver a consistent and coordinated user experience. For example, if the bank is providing M&A or acquisition finance, it is a considerable benefit to the client if the bank’s flow product teams can get the necessary accounts and connectivity operational quickly.

    Funding multiple projects in multiple locations

    Many treasuries in this sector operate in a highly demanding environment. The project-led nature of many businesses often means that at any one time they will have numerous projects around the globe at various stages of completion. Therefore, the various entities involved will have differing cash flow needs depending on the stage their particular project has reached.

    Given the diverse geographic nature of their business, this requires a banking partner that can deliver liquidity solutions that are both sophisticated and flexible. Multiple currencies will typically be involved (some of which may be restricted) and given the project-specific nature of many entities, there may well be the need for entities to be frequently added/removed from structures. (Particularly since in many jurisdictions, local regulation requires a local partner and therefore joint ownership of bank accounts). However, if this can be delivered, external funding requirements can be managed efficiently, as surplus liquidity is utilised elsewhere within the group to minimise borrowing costs.

    In lean treasury teams, process consistency is a key factor in efficient day-to-day operation. Reducing the burden of administration on the corporate treasury, not only expedites time to live for new projects, it also allows it to focus on the core activities that add value to the overall organisation.

    Efficient collection processes

    Once an infrastructure project is completed, a support services company is usually appointed to manage operations on a day-to-day basis. However, with ever-increasing pressure to optimise working capital, many leading treasuries are pushing initiatives to increase electronic collection volumes and straight-through processing levels.

    One increasingly popular ingredient in this process is the Next Generation Virtual Account (ngVA). Although virtual accounts are not a new concept, their potential uses have been extended with further capabilities, such as collections on behalf of (COBO). The traditional use of virtual accounts – giving individual customers their own unique virtual accounts into which to make remittances – is highly relevant to high volume collection businesses looking to improve automated reconciliation rates. However, ngVAs now offer an additional self-service element that gives companies the ability to open/close virtual accounts themselves (subject to the usual KYC process carried out by the bank). In the context of the shifting nature of project-based liquidity structures mentioned above, this is extremely valuable, as it enables central treasuries to handle much of the necessary addition/removal of entities and their associated virtual accounts from a structure themselves. It is facile to state, but the use of ngVAs in this context is likely to be less costly than maintaining physical accounts.

    From a payables perspective, and where permitted by regulation, treasury could then make payments on behalf of (POBO) entities using ngVAs. Individual entities can each have their own virtual account, which considerably eases the correct allocation of entries to the internal in-house bank ledger. It should be noted that ngVA functionality is subject to the capabilities of the partner banks involved.


    While companies operating in the IRB sector face a highly challenging environment, there are various ways in which treasuries are managing to create efficiencies and improve control of project-related activities across multiple jurisdictions. Given the nature of the sector, many of these activities are dependent upon getting good processes and practices in place by implementing and improving global architecture. This can span multiple areas of partner bank capability, such as connectivity, network, balance sheet strength and relationship quality. In view of the ongoing shift in global infrastructure spending, these qualities are also likely to gain in importance as more new projects continue to open in challenging new (and often remote) locations.

    1 Within GLCM at HSBC, the IRB sector consists of five subsectors: infrastructure, real estate, building materials, support services and conglomerates.

    2 Capital project and infrastructure spending - Outlook to 2025

    3 Infrastructure and Growth

    4 “Rapid Urbanisation”, PwC 2016

    5 India constructs 30 km/day highway under Modi's roadways push

    6 Viewpoint – $180 Billion of Middle East International Real Estate Investment

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