Exclusive: Vedanta CFO tells CT how it issued Asia’s first digital commercial paper
India’s metals and mining giant Vedanta has this month pioneered digital issuance of commercial paper (CP) in Asia, becoming the first in the region to use blockchain technology to reach investors with that instrument.
It was supported by Yes Bank, which deployed a Corda Enterprise-based (blockchain) solution developed by US-headquartered fintech firm MonetaGo. Vedanta issued a CP of INR 1 billion ($145 million) through the project.
“We have about a couple of billion dollars of commercial paper on our books at any point in time and this involves a lot of transactions and turnaround,” Arun Kumar, group CFO of Vedanta told the CorporateTreasurer.
“Because commercial paper [tenure] is basically anywhere from 60 to 180 days, you're constantly churning and issuing the commercial paper,” he said.
“For the treasury teams involved this can take a lot of time because, especially in the Indian context, and it's probably true of most of the world as well, the central regulator and the banking systems have become highly governance and compliance-conscious for the fundamental health of the capital markets.
“As a result, multiple documentation and confirmations are required from multiple counterparties.”
There is healthy demand Vedanta’s commercial paper in the market, with each trade involving many investors.
Given the likelihood of several counterparties and comprehensive regulatory/compliance requirements, including exhaustive documentation, a considerable amount of paperwork and coordination goes into each issuance.
“We have something like eight documents that we go through for one issuance, involving anywhere from a minimum of four to typically 20-25 counter parties, depending on the number of investors to the commercial paper that we issue. Every transaction can take easily a couple of days to complete after the deal's done and the money's transferred, simply from a documentation point of view.
“Most of the things happen today on Excel, paper etcetera. Then we invest time and resources to do an internal audit of them and the corporate audit team, which again looks at these transactions.
“In the spirit of digital automation, technology efficiency, time saving and treasury as a service, we decided to do this pilot on commercial paper and that's how this transaction came into be. It’s been a very, very successful pilot. I'm very happy with the counterparties that were involved in terms of the technology provided as well as the issuing and paying agent [Yes Bank].”
TIME AND COST SAVINGS
The inaugural issuance has helped the company to establish a robust infrastructure for similar deals to follow. If things go according to plan, 100% of Vedanta’s CPs will be offered through the blockchain platform, reckoned Kumar.
Vedanta, whose Ebitda for the year to March 31 stood at $3.39 billion (according to preliminary financial results), typically undertakes 50 such transactions a month, or 600 trades a year. Kumar estimates each transaction entails about 15 pages of documentation, or 9000 pages per annum.
In addition to the ecological benefit of automating the entire process due to the need for less paper, it eases the burden of clerical tasks on treasury personnel, allowing them to invest the time achieve more meaningful results.
Through end-to-end automation of the CP issuance process Vedanta can shave off about 12 to 14 hours or full-time equivalent (FTE) for each transaction, said Kumar.
“What I'm interested in along with our treasury team, is to see that the businesses are focused on taking decisions. That they [treasury personnel] are focusing on the most efficient use of capital and provide the financing. That they provide the right business support for decision making and analytics,” he said.
“They don't end up using that time to generate documents to make signatures, to file papers -- to become document chasers.”
OUTSOURCING REPETITIVE TASKS
The automation of the CP issuance process is another step towards achieving the company’s vision treasury as a service for its multiple business lines.
“We have embarked on a journey to completely do a hands-free treasury, convert treasury into a service for our business groups,” said Kumar.
“For example, zinc is a business line, iron ore is a business line -- we have empowered the teams running these assets. The central treasury team wants to convert the whole company to a completely hands free and digital technology enabled entity.”
Kumar noted the growing relevance of third-party service providers as partners for corporate treasury. Fintech up-and-comers have demonstrated their ability to aid companies in their routine treasury processes.
Corporates now enjoy the convenience of engaging these vendors’ services in areas such as technology without having to worry about coming up with those solutions in-house and investing heavily to develop them from a scratch.
“Perhaps once we achieved that goal [of 100% automation of CP issuances] we could even outsource this whole process or service, with the right commercial agreement and the right protection from the company to the external party.
“That way, my finance team is focused on results and generating value rather than investing time on mundane activities which can be done by somebody else in a far more efficient and technology savvy way,” he said.