Three-Layered Cash Pooling in Action

CRRC partners with Bank of China (Hong Kong) to create a bespoke global cash pool

To ensure the security of overseas funds and to support its international expansion plans, CRRC Corporation’s financial wing, CRRC Hong Kong Capital Management (CRRC-HKCM), created a project with Bank of China (Hong Kong) Limited (BOCHK) to establish a treasury centre in Hong Kong. The practical aim of the centre is to achieve optimal global and local cash visibility and control. With growth plans in the pipeline, CRRC-HKCM and its banking partner deservedly receive a Highly Commended in the 2021 Corporate Recognition Award for Best Cash Pooling Solution.

Beijing-headquartered CRRC Corporation (CRRC) is the world’s largest supplier of rail transit equipment, with hundreds of wholly-owned and majority-owned subsidiaries in more than 100 countries and regions globally. It comprehensively services the needs of clients with diverse rail equipment, consulting services, industrial investment and management, and asset management.

Deep concentration

With plans for growth requiring strong cash control, its financial wing, CRRC-HKCM, embarked upon a project to establish a rather neat three-layered cash pool for concentration enabling global account information to be gathered into a single platform in Hong Kong. A key aspect of the project saw a transaction-based downward-sweep setting applied, using a mix of automated and manual sweeping actions to optimise liquidity across the organisation.

Prior to the three-layer set-up, funds from CRRC overseas subsidiaries were directly concentrated into a Hong Kong header account. This created unclear transaction paths and confusing co-mingling of funds. BOCHK’s three-layered cash pooling structure removed all negatives at a stroke.

In practice, BOCHK’s cash pool applies a base layer for overseas operating accounts located in the UK, the US and Australia, each with a minimum balance sweep. Funds are concentrated into their own regional centres and are manually swept on a quarterly basis to their respective accounts in Hong Kong. The operating accounts participate in a local cash pool in Hong Kong, with funds automatically swept, daily, into the ultimate header account in Hong Kong. Funds from Hong Kong entities are automatically concentrated into the header account with a daily zero-balance sweep.

Global account information is gathered in a single platform, meaning that CRRC no longer faces the risk of manual errors and time lag in obtaining account information. This has improved accuracy for its financial analysis, treasury forecasting, and overseas investment. It also means account enquiries and payments are centralised for the Global Treasury Centre, CRRC-HKCM, to action. Currently more than 200 accounts located in 18 countries, are included on the platform, deploying the cross-border e-banking channel and MT940 reporting.

Because treasury management functions are centralised in CRRC-HKCM – including treasury resources, processes, control, and technology – it creates economies of scale and streamlines processes and connectivity with all CRRC’s overseas subsidiaries’ bank accounts.

CRRC-HKCM was looking to improve the balance between the use of idle funds and fulfilment of local payment obligations. The transaction-based downward sweep referred to above includes customised limits so that when a payment is initiated in any sub account, funds will be pulled, if necessary, from the header to complete it. To cater to different funding requirements and use patterns across different pool layers, a mix of automated and manual sweeping is facilitated.

Growth and strength

In terms of supporting its expansion plans, the practical benefits referred to above enable CRRC-HKCM to ensure cash from fellow subsidiaries is available in the right place, at the right time, and in the right currency. As a flexible pooling structure, it provides overseas fund security, which, as primarily an infrastructure builder, CRRC has found beneficial in the current environment of political instability.

Setting up a global treasury centre is also a demonstration of CRRC’s strength of control across its global structure. By requesting overseas subsidiaries to open accounts in Hong Kong, CRRC-HKCM achieves a deeper level of control within the group while further enhancing cash control and visibility for the benefit of the entire business.

In order to support rapid growth in overseas investment and business expansion, it is crucial for Chinese state-owned enterprises seeking to go global to ensure the control of overseas funds. This means enhancing the efficiency of treasury management beyond the mainland. As a global cash management model for such businesses, this project clearly denotes best practice.

It provides fund efficiency and necessary control and safety for a long-established state-owned enterprise with ongoing global expansion plans. In partnering with BOCHK and leveraging the bank’s online banking system, CRRC-HKCM has been able to adopt new technology to visualise its cash management processes, and improve its forecasting accuracy while optimising overseas fund decision-making. The partners are indeed Highly Commended in TMI’s 2021 Corporate Recognition Award for Best Cash Pooling Solution.