Aoraki Trade Exports Ltd, the finance manager's chair: What do you put on?

// DRILLS / ISSUE 02 / AORAKI · FINANCE MANAGER

ISSUE 02 · 2026-09-05 · 5 MIN READTHE SENIOR READ — MICHAEL

Four Months of Cover

AORAKI, FROM THE FINANCE MANAGER'S CHAIR

TRADE & EXPORT · THE FINANCE MANAGER'S CHAIR · DIFFICULTY 4/5

// YOUR DESK

Hedge cover4 months, from 9

New covenantMinimum cover, level to be set

USD receipts75% of NZ$36m

Export DSO74 days

The MD's viewThe kiwi is going to fall

What do you put on?

Read your desk

// ONE FILE, THREE CHAIRS

// THE LENDING CHAIR · ISSUE 02

Aoraki Trade Exports

Read from this chair →

// THE EXPORTER'S CHAIR

The Currency You Won't Name

Read from this chair →

// THE FINANCE MANAGER'S CHAIR

Four Months of Cover

You are here

// THE SETUP

You run the finance function at Aoraki, which means you run the hedging book. Two years ago it covered nine months of forecast USD receipts. Today it covers four. Nobody decided that in a meeting. The MD said the New Zealand dollar looked expensive, the rollovers got shorter, and a book that used to be policy became a position.

The bank's new facility has noticed. Alongside the NZD core and the USD sub-limit sits a minimum hedge-cover covenant; the level is to be agreed at documentation, and the relationship manager has asked you to propose it. The MD's instruction is clear enough: propose the lowest number the bank will accept, because the kiwi is going to fall and the unhedged receipts are where this year's margin lives.

You have the ledger open. Export DSO is 74 days and lengthening. Three-quarters of sales are in USD. The two Greater China distributors pay on open account. Peak shipping starts in three weeks, which means the largest USD receipts of the year are about to be invoiced, and most of them are not covered. In the bank's file, and yours, sits the treasury policy the board approved and sent at the FY23 review: cover six to twelve months ahead, a higher share in the nearer months. Nobody has sent a later one. In the bank's file, and yours, sits the treasury policy the board approved and sent at the FY23 review: cover six to twelve months ahead, a higher share in the nearer months. Nobody has sent a later one.

The bank wants a floor. The MD wants a view. You hold the book. What do you put on?

// FY25 SNAPSHOT

SOURCE: THE TREASURY BOOK · FY25 ACCOUNTS · COMPOSITE CASE — FICTIONAL

REVENUE

NZ$36m

▲ +28% (2yr)

USD SHARE OF SALES

75%

▲ from 55%

EXPORT DSO

74 days

▲ +21 days

HEDGE COVER

4 months

▼ from 9 months

OCF

NZ$1.1m

▼ −45% YoY

The board's treasury policy on file calls for cover six to twelve months ahead; the book holds four. Cover that follows a view instead of a cycle is the pattern lenders read first.

// YOUR JUDGMENT

What do you put on?

[A]Take the gap to the board's policy to the MD for approval, and propose its six-month floor as the covenant[B]Stay where you are at four months and ask the bank to negotiate the hedge-cover covenant away[C]Hedge to the covenant minimum and not a month more — keep the MD's view on the kiwi alive above the floor[D]Cover twelve months of forecast receipts in full, today, and take the view out of the business for good

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// THE READING

Begin with what a hedge is for, because the argument in the building has drifted. A hedge is not a forecast. It exists so that a business whose costs are in one currency and whose receipts are in another does not have its margin decided by a market it does not trade in. Aoraki already knows this, in writing: the board's own treasury policy, the one in the bank's file, calls for cover six to twelve months ahead. Cover that has fallen from nine months to four while USD receipts rose from 55% to 75% of sales is below the board's own floor. Nobody changed the policy. The book stopped following it, and the bank has read the gap as what it is, a view. The covenant is the bank's way of saying it will fund the exporter, not the view.

Which is why the senior banker's advice, in the finance manager's chair, is A. Forward contracts are placed on the MD's approval, so the route runs through him: put the gap between the book and the board's policy in this month's treasury report, and ask him to approve the cover the policy requires before peak shipping, so the largest invoices of the year are covered when they are raised. Then propose the covenant at the policy's own floor, six months: the one number you can defend to the bank and to the MD in the same sentence, because it is the board's. If he wants to keep a view, it comes out of the band above six months, never below it, sized and named in the report each month. A view that has to be signed every month is usually smaller than one that lives inside falling cover.

Hedging to the covenant minimum, C, keeps the view on and moves it to the edge of what the lender allows. The bank will read a book that sits exactly at its floor the way it reads a borrower who pays on the last day of the grace period: compliant, and telling. It also puts the business one bad rollover from a covenant conversation in the middle of shipping season.

B asks the bank to remove the one line in the structure that addresses what it actually saw, and the request itself confirms the reading. D takes the view out by taking a bigger one: twelve months in full, bought at whatever the market is today, is not the policy's shape either — the policy covers more of the nearer months and less of the far ones — and the forward line the bank provides stops at NZ$12.0m. It is also reached in a way that ends with the finance manager being right and the MD being told.

A hedge is not a forecast. Run the policy the board already signed, let the covenant sit at its floor, and make the owner's view a number he has to sign.

// THE SAME FILE, FROM THE OTHER CHAIRS

Three people read this file in the same week, each from their own side of it. Only one of them holds the bank's lever.

// THE LENDING CHAIR · ISSUE 02

Aoraki Trade Exports

Paid in USD, costs in NZD, asking for a NZ$6m multi-currency facility. The MD won't say which currencies.

Read from this chair →

// THE EXPORTER'S CHAIR

The Currency You Won't Name

Nearly your number, in two legs — and a third currency the bank will not fund until you name it. Another bank will. What do you sign?

Read from this chair →

// HOW READERS ANSWER

The senior banker's read is [A].

Early days. The distribution appears here once enough readers have answered.

The tempting answer is C. The senior banker chose A. The reading explains why cover fell from nine months to four, whose policy it fell below, and why a hedge is not a forecast.

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