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A dynamic approach
01 October 2005
Establishing an effective system to analyse and separate the major risk components in a specific market and transaction is not an easy task. Here, Federico Forni* reveals how this can be achieved and how successful management can lead to locating cheaper finance and a smoother transaction flow.
Read more:
political risk
country risk
emerging markets
finance
international
At GE growth is all about taking calculated risks. This means identifying and understanding a portfolio of risks regarding a specific transaction, which will lead to a mitigation plan of a deal, while always acting compliantly.
At GE's Oil & Gas we provide equipment and services to major oil and gas companies globally. Some of our customers reside in emerging markets that have a credit rating below investment grade. These countries require a risk manager's particular attention to assess and calculate all transparent risks, and the probability of different risk scenarios arising during the transaction.
Based on what I refer to as a risk compass (see diagram), you can attribute a price tag to each risk, which will result in a cashflow and net present value restatement. This tangible result has to be counter-weighted with the sum of all non-mitigatory risks remaining in the transaction.
A final decision might be...
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