Pioneering Best Practices in Global Liquidity and Risk Management
by Raymond Zhang, Assistant General Manager, Treasury Division, China International Marine Containers (Group) Ltd.
China International Marine Containers (Group) Ltd (CIMC) has experienced considerable overseas business expansion in recent years, with 65% of revenues now generated from outside China. In 2013, the company was one of the first Chinese corporations to implement a multi-currency, multi-entity, notional cash pool with Bank Mendes Gans (BMG) offering considerable value in cash visibility, liquidity and FX risk management. In this article, Raymond Zhang, Head of Group Financing at CIMC outlines the background to this decision and some of their experiences so far, with comment from Norbert Braspenning, Managing Director Asia Pacific, Bank Mendes Gans (a subsidiary of ING).
CIMC covers a wide spectrum of activities from containers and vehicles through to energy, chemical and food equipment, offshore oil and gas and airport facilities. Over the past five years, we have structured our business into eight business segments, the cash and treasury management activities of which are managed through our treasury holding company. This comprises two divisions: cash management (which takes care of cash management, financing and bank relationships) and our financial service operation that is involved with group financing and leasing.
CIMC has been the world’s no. 1 container business since 1996, and this remains a core activity for the business. However, other parts of the business, such as specialist vehicles, are also growing considerably, both in China and overseas, such as in Europe. The business is also actively engaged in mergers and acquisitions (M&A). For example, CIMC is the no. 3 company globally in offshore (oil and gas) equipment manufacturing having acquired a Norwegian business in 2008. As a result of both organic growth and M&A, CIMC has become a global business, with 65% of our income now derived from international activities, with significant balances in EUR, USD and other currencies.
Responding to change
Given the growth of the organisation, and exposure to an expanding range of foreign currencies, we needed to create a new model for handling foreign currency balances across markets and manage our FX risk more effectively. Although we had had a cash pool in place for the previous two years, we needed a more effective way of managing our currency risk as well as cash. We therefore decided to implement two cash pools: a domestic cash pool in China, and an international cash pool, which is operated by Bank Mendes Gans (BMG), owned by ING.
A pioneering relationship with BMG
There were a variety of reasons for selecting BMG to manage the international cash pool. We reviewed various options, and recognised that BMG’s multi-currency, notional cash pooling solution offered unique advantages in both currency and liquidity management, without impacting on our existing account structure.
CIMC was a pioneer amongst Chinese corporations as one of the first to adopt BMG’s solution. Although BMG is well-known internationally, particularly amongst multinational corporations headquartered in North America or Europe, the bank is currently less familiar to Asian, and particularly Chinese companies. However, we recognised that ING, with its subsidiary BMG offered the combination of innovative solutions, experience and expertise, commitment to our business and international reach that we required.