Don’t be bullied into burning your cash
It is an irrefutable fact, that using excess liquidity without first considering the implications will lead to no good. Which is why cash-rich companies should strongly consider establishing robust investment policies and carefully consider which products best fit their needs.
In Asia, investors have long criticised the corporate giants for hoarding billions of dollars. Now, these cash piles are under attack from governments that want them put to better use – such as driving economic growth.
But, companies should not be pressured into making important strategic decisions. Costly mistakes can easily be made.
Clearly, investing cash reserves on bad or impractical acquisitions is strategically unwise, but the alternative – parking them in low or even negative yielding deposits – is equally unsatisfactory.
Repos, although not so well known Asia, can work as important part of the arsenal of tools available to corporate treasurers that have traditionally been more concerned with liquidity and safety than with yield.
Indeed, as an investment vehicle, repos can offer increased yield without compromising on counterparty risk, making them an attractive proposition.