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Treasury & Capital Markets
Renminbi opening unleashes trapped cash as global centres link to China
Continuing with our 'which came first' theme, 2014 was a red-hot year for the internationalization of the renminbi. Especially in treasury, trade and risk management, the renminbi is front and centre of discussion among large corporates and multinationals
The Asset 31 Mar 2015

Continuing with our 'which came first' theme, 2014 was a red-hot year for the internationalization of the renminbi. Especially in treasury, trade and risk management, the renminbi is front and centre of discussion among large corporates and multinationals.

 

No wonder, service providers wasted no time to announce that their deal was the 'first' to take advantage of the February 2014 directive by the Shanghai branch of the State Administration of Foreign Exchange (SAFE) on the convertibility of the renminbi and the unrestricted foreign currency exchange. The directive came on the back of the launch of the Shanghai Pilot Free Trade Zone (SPFTZ) at the end of September 2013.

 

For the longest time, China was a bugbear for companies. Their CFOs and treasurers have had to undertake elaborate and at times painstaking contortion to move cash within the mainland, let alone out of (and into) China.

 

The landmark announcement allows foreign invested enterprises registered in the SPFTZ to conduct foreign exchange capital account settlements at their own discretion and open renminbi special deposit accounts to hold renminbi funds obtained from foreign exchange settlements, which may then be used to make payments for real transaction.

 

The significance of this development marked a tipping point for foreign companies operating in China. What once was a so-called trapped-cash country, the mainland overnight made possible for those registered in the SPFTZ to participate in cross-border sweeps and pools. This means a great deal as given the size of business in China, many companies do have significant trapped cash or financing needs.

 

Several CFOs and treasurers were quick to take advantage of the easing measures and identify the opportunities that allow them to integrate their Chinese entities into their global cash pooling structures. These enable the companies, among others, to reduce their reliance on external financing and cut their foreign exchange risk exposure as well as save on their funding cost.

 

Who was the first to execute a cross-border deal under this directive is somewhat of a pissing match among service providers. Among the major providers, each one can legitimately lay claim to being the first in some shape or fashion. What this enthusiasm among the banks translate to is a raft of deals the biggest beneficiaries of which have been the corporates.

 

One of the first renminbi solutions that was implemented was by global healthcare company Roche through Citi by way of cross-border renminbi liquidity management solution, including automated pooling, POBO/ROBO (payment on behalf/receive on behalf) and netting.

 

By integrating China into their global pooling structure, the company is reaping a number of benefits, including improved group liquidity management, reduced financing costs for both China and its overseas entities, and reduced FX costs as renminbi is now centralized in the group cash pool.

 

Sonepar Group, a privately-owned business-to-business distributor of electrical equipment with headquarters in Paris, was also able to reduce its onshore China funding cost through a two-way renminbi cross-border cash pooling structure provided by the Royal Bank of Scotland (RBS).

 

The solution ensures the optimum use of the group's surplus liquidity and gives Sonepar full visibility of its balances both with RBS and with other institutions. It allows the firm to increase its control of surplus liquidity and can self-fund its overdrawn positions. And by adding the two-way renminbi cross-border cash pooling to its regional cash management capabilities, it provides Sonepar with more resources to finance its growth strategy.

 

And it is not just the global multinationals that have participated. Zhejiang Longsheng, a China-based dyestuff group, was able to optimize its liquidity management structure since it can mobilize cash across border to meet its onshore and offshore funding requirements. With Standard Chartered acting as its service provider, the company built its first Singapore cross-border two-way renminbi cash pool sweeping structure.

 

Tyco International, the world's largest pure-play fire protection and security company, partnered with Citi to implement an automated two-way cross-border renminbi sweeping structure, which enables the company to now perform cross-border renminbi sweeps from and into the mainland on a true end-of-day basis from its finance entities outside of China.

 

The results mean lower external funding costs in China and, therefore, improving balance sheet efficiency, allocate resources previously spent on administering the inter-company loans to other priority projects and access surplus funds in the country.

 

Facing challenges to achieve global cash liquidity and aggregation, as well as lower costs of funding and tax, Standard Chartered set up a tax-efficient auto sweeping model cash pool for Shanghai-based Baoxin Auto Group in China with the capability of balance sharing and cap limit on utilization.

 

It involves manual cross-border sweeping solution on non-quota basis, which can achieve same-day completion of sweeping instruction. A special account was opened to facilitate cross-border sweeping activity per requirement of the regulation. The solution realizes full visibility and control on cash flow at domestic and global levels, and saving on funding costs and tax costs.

 

The other winning renminbi solutions highlighted in this year's annual The Asset Treasury, Trade and Risk Management Awards include Shell's global renminbi mandate involving cross-border sweeps and renminbi billing.

 

Hong Kong global supply chain group, Li & Fung, instituted a two-way cross-border renminbi cash pool, which allows access to cheaper offshore funding for their China entities. Both Shell and Li & Fung worked with Standard Chartered for their respective deals.

 

The Asset celebrates these and other winning deals at the inaugural Treasury Trailblazer Summit, which will bring together the region's CFOs and treasurers in a high-level gathering to share treasury best practice. The Summit, the only one of its kind in the region, will be held on April 30 2015 at the Four Seasons in Hong Kong.

 

For more details and to attend The Asset Triple A Treasury, Trade and Risk Management Awards dinner, please click here.

 

To view the list of winning Asian Champions solutions click here.

 
To view the list of winning Regional solutions click here.
 
To view the list of winning Country solutions click here.
 
To view the list of winning SME solutions click here.
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