GLOBAL CASH 25: TOO MUCH OF A GOOD THING

TREASURY & CASH MANAGEMENT | GLOBAL FINANCE CASH 25

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METHODOLOGY

The Global Finance Cash 25 ranks public companies by cash, cash equivalents and short-term securities on their balance sheets. Data is gathered from more than 70,000 public companies worldwide. It is a ranking of nonfinancial corporations—we exclude financial institutions from the list.

Top 25 Global Public Companies By Cash On Balance Sheet

	Company	Country	Cash* ($mn)	Cash* ($mn) Previous Year	Cash* Change (YoY)	Total Assets ($mn)	Capex ($mn)
1	GENERAL ELECTRIC	United States	88,555	77,268	11,287	656,285	13,458
2	MICROSOFT	United States	76,775	63,040	13,735	142,431	4,257
3	VERIZON COMMUNICATIONS	United States	54,129	3,563	50,566	274,098	17,184
4	CISCO SYSTEMS	United States	50,610	48,716	1,894	101,191	1,160
5	PETRONAS	Malaysia	42,053	50,595	-8,542	159,669	N/A
6	APPLE	United States	40,546	29,129	11,417	207,000	9,076
7	ORACLE	United States	38,819	32,216	6,603	90,344	580
8	TOYOTA MOTOR	Japan	34,739	35,795	-1,056	376,881	N/A
9	PFIZER	United States	32,408	32,399	9	172,101	1,465
10	JOHNSON & JOHNSON	United States	29,206	21,089	8,117	132,683	3,595
11	GENERAL MOTORS	United States	28,993	27,410	1,583	166,344	9,819
12	DAIMLER	Germany	22,694	19,864	2,830	232,439	N/A
13	TOTAL	France	20,942	22,471	-1,529	239,298	N/A
14	THE COCA-COLA COMPANY	United States	20,268	16,551	3,717	90,055	2,550
15	INTEL	United States	20,087	18,162	1,925	92,358	10,747
16	VODAFONE	Great Britain	19,618	13,545	6,073	215,788	N/A
17	AMGEN	United States	19,401	24,061	-4,660	66,125	693
18	RENAULT	France	17,599	16,056	1,543	103,437	N/A
19	MERCK	United States	17,486	16,141	1,345	105,645	1,548
20	RAKUTEN	Japan	17,200	8,254	8,946	30,483	N/A
21	SAMSUNG ELECTRONICS	South Korea	16,840	18,728	-1,888	202,838	N/A
22	TELEFÓNICA	Spain	16,681	15,462	1,219	163,948	N/A
23	CHEVRON	United States	16,516	21,913	-5,397	253,753	37,985
24	SONY	Japan	16,186	19,178	-2,992	150,890	N/A
25	MITSUBISHI	Japan	15,893	16,900	-1,007	153,061	N/A
	Total		774,244	668,505	105,739		114,117

*Includes cash, cash equivalents and short-term securities (those maturing between three months and a year).
Data valid as of July 16, 2014.
Data provided by: Orbis by Bureau van Dijk

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Corporate treasurers face new challenges this year, despite all their cash.

Corporate treasurers’ balance sheets these days are bulging with cash. Much of it is being held offshore for tax reasons. Domestic authorities are increasingly up in arms over that fact. Their actions as a result of that ire could make it more difficult for companies to fund operations at a time when interest rates are expected to rise. And the opportunities that rate increases should create for higher yields may be more difficult to exploit as a result of new financial regulations. Activist investors, such as Carl Icahn, are already discontented with companies’ sitting on all this cash, and that discontent is likely to intensify.

In response, experts say treasurers must review their practices to make sure they align properly with the new environment. But that’s easier said than done.

It’s no secret that many multinationals keep much of their cash in low-tax jurisdictions. Of the 14 US companies on the Global Finance Cash 25 ranking, nine that do disclose their foreign cash have the majority of it in foreign subsidiaries (when long-term investments are included), though the cash is reported as the parents’ in their consolidated financial statements (see table, right). And no deferred tax liability need be established, so long as a company claims the cash is “permanently invested” there.

But with so much cash out of the reach of the IRS and increasing complaints over that lost potential revenue being voiced in Congress, the prospect is growing that companies will end up having to pay tax on it at some point. That potential tax liability could make it more expensive for the companies to borrow.

Borrowing costs could rise in part because rating agencies are starting to take the possibility of tax rule changes into consideration when evaluating companies’ credit-worthiness. In a report in June, Fitch Ratings, for example, found that the tax benefits of undistributed foreign earnings accounted for 27% of the earnings per share of General Electric, the Global 25 company with the most cash on its balance sheet. For other members of the Global 25 ranking, including Johnson & Johnson, Microsoft and Oracle, the EPS impact ranged from 15% to 22%.

Fitch also found that leverage as a ratio of funds from operations would be anywhere from 100% to 175% higher for those companies if their foreign cash were subject to US tax. “The exemption flatters, in our view, post-tax earnings and so too credit metrics based on consolidated financial metrics,” the analysts wrote. And they cautioned credit investors not to count on companies’ avoiding a tax liability on foreign undistributed earnings despite existing rules. As a result, the analysts wrote, “investors may underestimate credit risk” in connection with foreign cash.

Some experts say the recent spate of US corporate inversions, under which acquisitions of foreign companies allow a shift in tax domicile, is being driven by the need to access that cash rather than by the prospect of lower tax rates abroad.

In a recent paper, Edward Kleinbard, an international tax expert on the faculty of the University of Southern California law school and former chief of staff of Congress’s Joint Committee On Taxation, suggests that inversions reflect a fear on the part of corporates that Congress would otherwise put that off-shore money out of reach. “The recent surge in interest in inversion transactions,” Kleinbard writes, “is explained primarily by US-based multinational firms’ increasingly desperate efforts to find a use for their stockpiles of offshore cash.” Among the Global Cash 25, Pfizer is seeking such a shift in tax residency through an inversion, and others are expected to do so. [See our piece on Walgreen’s scrapped inversion] 

Concern over taxation isn’t limited to US multinationals. The Organization for Economic Development plans to tighten global rules for transfer pricing in an effort to crack down on the use of tax havens.

HIGHER BORROWING COSTS

Even if their off-shore cash isn’t taxed, corporate treasurers face the prospect of higher borrowing costs, owing to the eventual end of easy monetary policies by many central banks, including the Federal Reserve and the Bank of England. With rates likely to rise, the Association for Financial Professionals reported in the August issue of its “Risk!” newsletter that companies are swapping floating-rate debt for fixed-rate, and using swaps to hedge future debt issuance. Some of that requires syndication among a group of banks. Might it be cheaper to repatriate the foreign cash?

Not by a long shot—at least not at present. Fitch’s analysts estimate it would take 14 years for a company borrowing at current rates of 4% (or 2.5% after taking into account the tax deduction for interest) to break even if instead it used foreign cash and paid US tax on the funds at a 35% rate. That assumes no tax was paid to the foreign jurisdiction, and in most cases, the IRS would credit any foreign taxes a company paid. But if interest rates rise, the analysts note, “the break-even time would fall and may start to influence management actions.”

Of course, companies can make use of their foreign cash through short-term loans from their subsidiaries. For US companies, for example, so long as the loan terms are for fewer than 30 days in a row and 60 in the aggregate, the companies face no US tax for repatriation. 

In fact, some analysts believe that companies make extensive use of such short-term intracompany loans, though such practices may fly in the face of the claim that the funds are “permanently invested.”

Jeff Wallace, a principal in the US consultancy Greenwich Treasury Advisors, says that big US banks as well as foreign ones are helping treasurers manage that money. He explains that companies with considerable overseas cash typically consolidate it in an in-house bank situated in such tax havens as Ireland, Luxembourg, the Netherlands or Switzerland. But he says big banks will offer to manage the in-house bank for them, saving them the expense of corporate staffing and IT infrastructure. Bank of America, for example, is very active in Ireland. On the other hand, he notes that foreign banks offer higher rates on deposits than comparably-rated US banks.

Nevertheless, the IRS rules about short-term loans lead other observers to doubt that corporate cash is just sitting in banks. “My sense is that the cash really is used all around the world by transforming it into intercompany loans and lending it to other subsidiaries, then paying it back at a specified time and then renewing the loan,” Jack Ciesielski, an analyst and principal at investment advisory firm R.G. Associates, wrote in an email. “The cash may be domiciled in any one country at a point in time, but moved anywhere else the day after balance sheet date.”

HIGHER BUT ELUSIVE YIELDS

Corporate concerns about government action don’t end with potential taxation. As a result of new rules requiring institutional money market funds that invest in nongovernment securities to let their net asset values float instead of fixing them at a $1 a share, the AFP reports that corporate treasurers may find it more difficult to issue commercial paper to fund short-term needs or invest cash in money funds at higher yields—despite a rise in interest rates.

As an alternative to the funds, some US treasurers are looking to invest in overnight or other short-term loans based on repurchase agreements of securities, or repos. But calling repo “a big risk” requiring daily analysis, Anthony Carfang, partner and director in consultancy Treasury Strategies, says “There’s no way a company can get the trade and execution that a money fund company can.”

But Laurens Tijdhof, partner at treasury consultancy Zanders says that it may be worthwhile to invest directly rather than depend on money funds—despite their advantages in diversification and execution. The money funds tend to invest in repos backed by a variety of collateral including lower-grade securities (for example, mortgage-backed securities), but corporates could insist on government-backed repos only, reducing the risk somewhat. “There has been quite a lot of discussion [among corporates] about this.”

Nonetheless, the AFP finds in its most recent corporate liquidity survey that 52% of corporate cash currently resides in banks, up from 50% last year and 25% in 2008.

But treasurers may need to reevaluate how and where they hold their deposits, and in fact must revisit their banking relationships entirely in light of Basel III global banking regulations. Carfang characterizes Basel III’s unprecedented emphasis on the liability side of bank balance sheets as a potential “sea change” in banking relationships, and the biggest in three or four decades.

More specifically, Carfang explains that for deposits that aren’t stable, owing to customers’ inconsistent cash flow, “corporates may find that banks no longer want all of their business.”

In addition, regulators may frown on banks’ paying a premium for deposits because that could indicate they are attempting to purchase them, which in turn would suggest their funding is weak.

Finally, treasurers may also soon have to post collateral if they are using derivatives to hedge interest-rate, commodity or currency risk. Although the requirements dictated by the Dodd-Frank Act were expected to exempt nonfinancial end users, the exemption has yet to be provided four years after the legislation was signed into law. That’s because bank regulators contend the law requires that collateral be posted by non-FIs, despite a letter from the law’s authors saying the opposite.

“It’s been a slow-moving train wreck,” says Luke Zubrod, director of risk and regulatory advice at consultancy Chatham Financial, of the derivatives rules.

And while new rules are expected as this article goes to press, Chatham doesn’t expect them to grant a complete exemption for nonfinancial end users. In fact, companies are now likely to have to either post collateral up front on such swaps or agree to do so once the value of the swap reaches a certain threshold. 

“It’s going to be very painful,” says Zubrod.

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​Far From Home

Percentage of cash (including long-term marketable securities) of selected Global Finance Cash 25 companies that is held abroad

Company	%
Amgen	91.6
Oracle	87.5
Merck	85.1
Coca-Cola	82.2
Microsoft	79.2
Apple	75.8
Cisco	72.9
Johnson & Johnson	63.7
Pfizer	53.1
General Electric	37.6

Source: Analyst’s Accounting Observer

Top Regional Public Companies By Cash On Balance Sheet

NORTH AMERICA | WESTERN EUROPE | CENTRAL & EASTERN EUROPE | LATIN AMERICA | ASIA | MIDDLE EAST | AFRICA

North America

The list of North American companies with the most cash on their balance sheets in 2013 was topped by GE, whose ample cash includes the activities of its substantial finance subsidiary. The huge increase in Verizon’s cash reflected not only the $49 billion in proceeds from debt it issued last September to finance the cash portion of its acquisition of Vodafone’s 45% interest in Verizon Wireless, but also a big increase in operating cash flow.

Rank	Company	Country	Latest Reporting Year	Cash* ($mn)	Cash* ($mn) Previous Year	Change (YoY)
1.	GENERAL ELECTRIC	US	2013	88,555	77,268	11,287
2.	MICROSOFT	US	2013	76,775	63,040	13,735
3.	VERIZON COMMUNICATIONS	US	2013	54,129	3,563	50,566
4.	CISCO SYSTEMS	US	2013	50,610	48,716	1,894
5.	APPLE	US	2013	40,546	29,129	11,417
6.	ORACLE	US	2014	38,819	32,216	6,603
7.	PFIZER	US	2013	32,408	32,399	9
8.	JOHNSON & JOHNSON	US	2013	29,206	21,089	8,117
9.	GENERAL MOTORS	US	2013	28,993	27,410	1,583
10.	THE COCA-COLA COMPANY	US	2013	20,268	16,551	3,717
11.	INTEL	US	2013	20,087	18,162	1,925
12.	AMGEN	US	2013	19,401	24,061	-4,660
13.	MERCK	US	2013	17,486	16,141	1,345
14.	CHEVRON	US	2013	16,516	21,913	-5,397
15.	BOEING	US	2013	15,258	13,558	1,700

 

Western Europe

All but four of the 10 Western European companies with the most cash on their balance sheets saw their totals rise in 2013. The cash on GDF Suez’s balance sheets fell the most on a proportionate basis, by 16%, followed by Siemens (10%), Total (7%) and Airbus (3%). Deutsche Telekom added the most cash, with an increase of 107%, while Rio Tinto and Vodafone saw their cash grow by 45%. Sanofi also saw a big increase of more than a third.

Rank	Company	Country	Latest Reporting Year	Cash* ($mn)	Cash* ($mn) Previous Year	Change (YoY)
1.	DAIMLER	DE	2013	22,694	19,864	2,830
2.	TOTAL	FR	2013	20,942	22,471	-1,529
3.	VODAFONE	GB	2012	19,618	13,545	6,073
4.	RENAULT	FR	2013	17,599	16,056	1,543
5.	TELEFÓNICA	ES	2013	16,681	15,462	1,219
6.	GDF SUEZ	FR	2013	14,859	17,739	-2,880
7.	AIRBUS GROUP	NL	2013	14,532	15,003	-470
8.	SIEMENS	DE	2013	13,231	14,760	-1,529
9.	NOKIA	FI	2013	12,374	13,074	-700
10.	ERICSSON	SE	2013	12,000	11,793	207
11.	SANOFI	FR	2013	11,470	8,493	2,977
12.	DEUTSCHE TELEKOM	DE	2013	10,993	5,312	5,681
13.	RIO TINTO	GB	2013	10,505	7,373	3,132
14.	REPSOL	ES	2013	10,382	8,336	2,046
15.	E.ON	DE	2013	10,088	8,637	1,451

 

Central & Eastern Europe

Seven of the 10 Central and Eastern European companies with the most cash on their balance sheets at the end of 2013 were Russian. Given the Western sanctions that have been imposed on the country over its role in the Ukraine crisis, that disposition may well change this year. But in which direction? Revenues are likely to fall, but the companies might respond by curtailing spending by a greater amount.

Rank	Company	Country	Latest Reporting Year	Cash* ($mn)	Cash* ($mn) Previous Year	Change (YoY)
1.	SURGUTNEFTEGAS	Russia	2013	14,578	12,154	2,423
2.	RUSSIAN HIGHWAYS STATE COMPANY	Russia	2012	1,813	1,439	374
3.	MOSKOVSKY METROPOLITEN	Russia	2012	1,754	652	1,103
4.	LASY PAŃSTWOWE	Poland	2012	936	828	107
5.	URALKALI	Russia	2013	933	1,666	-732
6.	SC OLYMPSTROY	Russia	2012	888	78	810
7.	SKOLKOVO FUND	Russia	2012	767	506	261
8.	ACRON	Russia	2013	695	1,633	-938
9.	CESKA POSTA	Czech Republic	2012	687	434	254
10.	LESY ČESKÉ REPUBLIKY	Czech Republic	2012	558	514	44

 

LATIN AMERICA

The two Mexican companies on the list were the only ones that saw cash decline year-on-year. Cash at soft drink bottler Femsa fell by 28%, while that of media company Grupo Televisa declined by almost 17%.  At the other end of the spectrum, cash more than doubled at Chile’s Latam Airlines Group and at two Cayman Island companies, Hengan International Group and SINA Corp, with the latter seeing its total rise by 162%.

Rank	Company	Country	Latest Reporting Year	Cash* ($mn)	Cash* ($mn) Previous Year	Change (YoY)
1.	SCHLUMBERGER	Curaçao	2013	8,370	6,274	2,096
2.	LATAM AIRLINES GROUP	Chile	2013	2,695	1,287	1,408
3.	EMBRAER	Brazil	2013	2,624	2,374	250
4.	HENGAN INTERNATIONAL GROUP	Cayman Islands	2013	2,531	1,240	1,291
5.	FEMSA	Mexico	2013	2,094	2,930	-836
6.	MARVELL TECHNOLOGY GROUP	Bermuda	2013	1,969	1,919	50
7.	SINA CORP	Cayman Islands	2013	1,868	714	1,155
8.	GREENTOWN CHINA HOLDINGS	Cayman Islands	2013	1,849	1,256	593
9.	TPK HOLDING	Cayman Islands	2013	1,583	801	782
10.	GRUPO TELEVISA	Mexico	2013	1,561	1,874	-313

 

Asia-Pacific

Japanese e-commerce site Rakuten saw its cash more than double last year, landing it on the Global 25 list this year and demonstrating the growth of online shopping. Meanwhile, South Korean electronics giant Samsung found itself under pressure to return cash to shareholders, and sure enough, the amount on its balance sheet fell by 10%. Elsewhere among the top 10 Asia-Pac companies, cash fell 17% at Petronas, 16% at Sony and 13% at Mitsui.

Rank	Company	Country	Latest Reporting Year	Cash* ($mn)	Cash* ($mn) Previous Year	Change (YoY)
1.	Petronas	Malaysia	2012	42,053	50,595	-8,542
2.	TOYOTA MOTOR	Japan	2012	34,739	35,795	-1,056
3.	RAKUTEN	Japan	2013	17,200	8,254	8,946
4.	SAMSUNG ELECTRONICS	South Korea	2013	16,840	18,728	-1,888
5.	SBI HOLDINGS	Japan	2012	16,644	13,999	2,644
6.	SONY	Japan	2012	16,186	19,178	-2,992
7.	MITSUBISHI	Japan	2012	15,893	16,900	-1,007
8.	MITSUI	Japan	2012	15,192	17,484	-2,293
9.	SOFTBANK	Japan	2012	14,592	12,426	2,166
10.	CYUAN GUO NONG YE JIN KU	Taiwan	2011	12,486	8,898	3,588

 

Middle East

Cash at Middle Eastern companies is almost as volatile as the region’s politics. While half of the companies listed in the Top 25 were Israeli, their totals sometimes went in opposite directions, with cash falling at Teva Pharmaceuticals by 64% and soaring at Ersaban Holdings by 3,147%. The volatility wasn’t limited to Israel, with the UAE’s Arabtec Holding seeing cash rise by 182%, while the amount on the books at Kuwait’s Zain fell by 31%.

Rank	Company	Country	Latest Reporting Year	Cash* ($mn)	Cash* ($mn) Previous Year	Change (YoY)
1.	ERSABAN HOLDINGS	Israel	2012	3,148	1	3,147
2.	ISRAEL AEROSPACE INDUSTRIES	Israel	2013	1,957	1,331	626
3.	ZAIN	Kuwait	2013	1,423	1,086	337
4.	TASNEE	Saudi Arabia	2013	1,382	1,722	-340
5.	CHECK POINT SOFTWARE TECHNOLOGIES	Israel	2013	1,167	1,503	-337
6.	TEVA PHARMACEUTICAL	Israel	2013	1,038	2,879	-1,841
7.	RAFAEL ADVANCED DEFENSE SYSTEMS	Israel	2012	829	542	287
8.	SAUDI INTERNATIONAL PETROCHEMICAL CO	Saudi Arabia	2013	762	814	-52
9.	ARABTEC HOLDING	UAE	2013	704	250	454
10.	NATIONAL INDUSTRIES GROUP	Kuwait	2013	615	707	-92

 

Africa

South Africa dominates the list of the 10 most cash-rich companies in its region, with all but one of the list domiciled in that country. Most saw increases in cash, with Sasol, Naspers, Murray & Roberts and Aspen Pharmacare all experiencing gains of 38% or more. The biggest decline among the South Africa companies was at Shoprite, where cash fell by 38%. The only non–South African corporation among the ten, Golden Agri-Resources of Mauritius, also saw cash fall, by 14%.

Rank	Company	Country	Latest Reporting Year	Cash* ($mn)	Cash* ($mn) Previous Year	Change (YoY)
1.	LAFARGE SOUTH AFRICA	South Africa	2013	3,437	N/A	N/A
2.	SASOL	South Africa	2013	2,656	1,606	1,050
3.	NASPERS	South Africa	2012	1,768	1,281	487
4.	STEINHOFF INTERNATIONAL HOLDINGS	South Africa	2013	911	977	-66
5.	THE BIDVEST GROUP	South Africa	2013	838	716	122
6.	ANGLOGOLD ASHANTI	South Africa	2013	649	892	-243
7.	MURRAY & ROBERTS	South Africa	2013	623	413	210
8.	SHOPRITE	South Africa	2013	611	968	-357
9.	ASPEN PHARMACARE	South Africa	2013	605	405	200
10.	GOLDEN AGRI-RESOURCES	Mauritius	2013	587	685	-98

*Includes cash, cash equivalents and short-term securities (those maturing between three months and a year).  
Data valid as of July 16, 2014.
Data provided by: Orbis by Bureau van Dijk