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Bunge implements RMB cross-border intercompany loan facility
Global food company Bunge, in collaboration with J.P. Morgan, has set up a renminbi-denominated cross-border intercompany loan facility in the Shanghai free trade zone (FTZ).
Christoph Kober 6 Feb 2014

Global food company Bunge, in collaboration with J.P. Morgan, has set up a renminbi-denominated cross-border intercompany loan facility in the Shanghai free trade zone (FTZ).

 
The facility of undisclosed size was first utilized in December 2013 and creates a two-way channel for funds to move between Bunge’s regional treasury centre in Singapore and its China headquarters in the FTZ.
 
Commenting on the structure in a statement, Sonny Choong, chief financial officer at Bunge Asia, said the integration of the company’s China and global cash management platforms will allow the company to utilize capital more efficiently.
 
Michael Nelson, head of corporate sales China for J.P. Morgan Treasury Services added: “This transaction shows how China’s ongoing financial reforms are making a real and measurable difference to the way companies can do business in China. [It] is an important development which demonstrates the practical aspects of regulatory reform, and we’re delighted to play an important role in helping our clients adapt to the changing environment and capitalize on the many opportunities China presents.”
 
China’s central bank in July of last year permitted cross-border renminbi lending from anywhere in China, without additional approval from the PBoC required. A number of corporates have since seized this channel as a liquidity management tool, bringing trapped profits from their Chinese entities offshore.
 
Complexities remain, however. Chinese regulations allow for cross-border lending on a net basis only – and hence the amount lent to onshore Chinese entities cannot exceed what was initially repatriated offshore.
 
Treasurers also note that the challenge is less in sweeping funds offshore, but rather to pool balances from their different Chinese entities in one central location such as Shanghai.
 
As one treasurer recently related to The Asset: “The central government might say one thing but it is the state government that really holds the power. We have more than US$800 million of trapped cash in China, so we wanted to centralize the cash in Shanghai – which the central bank says you can – and then have a credit facility in Singapore linked to that pool. The structure is in place but the provincial governments are blocking it to this day [because they do not want the funds to leave their jurisdiction]. So, as much as the talk about the internationalization of the RMB and the Shanghai FTZ tickles me, in reality it won’t work unless the local governments have less power.”
 
Bunge operates in China through five legal entities and one branch office. It imports soybeans and other commodities and operates soybean processing plants.
 
Both Citi and HSBC in late January announced they had implemented automated cross-border cash sweeping structures for their clients Roche and Dover, respectively. These differ from manual cross-border lending facilities in that they reduce the client’s documentary burden and streamline tax and accounting considerations, representatives of the two banks highlight.

 

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