Cash & Liquidity Management

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A Flagship Project to Unlock RMB Onshore Liquidity Arup became the first corporation outside of the SFTZ to perform an automated, cross-border RMB sweep between Shanghai and London, which has enabled the group to integrate its onshore RMB (CNY) account into its global cash pool - a major step forward in global liquidity management.

A Flagship Project to Unlock RMB Onshore Liquidity

A Flagship Project to Unlock RMB Onshore Liquidity

by Richard Abigail, Group Treasurer, Arup

In December 2014, global consulting and engineering company Arup, supported by partner bank HSBC, became the first corporation outside of the Shanghai Free Trade Zone (SFTZ) to perform an automated, cross-border RMB sweep between Shanghai and London. This landmark transaction has enabled Arup to integrate its onshore RMB (CNY) account into its global cash pool, a major step forward in global liquidity management. In this article, Richard Abigail, Group Treasurer, Arup, discusses the group’s recent global cash pooling initiative, and its extension into mainland China.

Treasury organisation

We have centralised a number of corporate functions into centres of excellence based in London, including group treasury. Group treasury includes two people who take responsibility for front office, advisory services, debt issuance, bank guarantees, cash and risk management, while back office processing is done through our shared service centre (SSC).

Liquidity optimisation

Over the past few years, we have been proactive in optimising liquidity management. In the past, liquidity was very fragmented without a robust approach to credit risk. For example, we held £100m with a single bank, but only 5% was available to group treasury. We approached HSBC, our primary partner bank, based on the quality of the existing relationship, the bank’s global footprint (for example, Arup is also headquartered in Hong Kong and London), the similarities in our approach to risk, and HSBC’s specific expertise in liquidity management. With HSBC’s help, we first launched our global multi-currency cash pool in 2011, initially manually, but subsequently the pooling process has been automated. Over the next three years, we integrated most of our entities located in 19 open economies, such as UK, Singapore, Australia and Hong Kong, as well as our captive insurance company, which is not possible with all banks.

While it was relatively straightforward to consolidate cash across most of our entities, it was more challenging as we extended our group liquidity strategy to regions such as United States and China. Some of these difficulties were internal, while in other cases, particularly China, cash pooling has been constrained by regulatory requirements. In these cases, we have taken a step-by-step approach. For example, when we extended our cash pool to the US, we originally set up a $5m buffer, but treasury now has control over 100% of this cash.

Overcoming liquidity challenges in China

Arup has had a presence in China for 30 years, and now employs 850 people in the country following a period of rapid growth. We have used RMB for cross-border trade for some years, both for intercompany and third party flows. Settling intercompany invoices in RMB has resulted in a steady flow of RMB coming out of China, and we have experienced no difficulties in integrating our offshore RMB (CNH) account into our global cash pool. In addition, however, our cash balance in China was growing, but cash was effectively ‘trapped’, so we invested locally and accepted the exposure to RMB volatility.

However, with recent regulatory changes in China, we have finally been able to integrate cash in China within our global liquidity strategy. We took a two-step approach to achieving this. We have one entity in China, but with numerous branches, each of which had separate accounts, so our first step was to pool cash in-country. Secondly, we looked at how we could integrate this pool account into our global cash pool. While we knew that some corporates were using techniques such as entrust loans to transfer cash offshore, we were seeking a more convenient solution that was consistent with our global liquidity strategy.

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