Strategic Financing in Asia
by Helen Sanders, Editor
Few discussions about the growth of world trade can exclude Asia, particularly China, with reference to both intra-region and global trade patterns. With continued market uncertainty and speculation about the future shape of the Eurozone, some companies have decided not only to direct their strategic focus towards Asia, whether for procurement, manufacturing or sales, but also to finance these activities locally. This trend does not conflict with that of centralisation of cash and treasury management activities into regional or global treasury centres. Indeed, as John Laurens notes in this month’s Treasurer’s Voice, we are witnessing a growth in Asian, and China-based shared services, including treasury. There are a variety of drivers for the growth of financing in Asia, as Asian multinationals seek to expand outside of the region, and foreign multinationals increase the scale of their operations within Asia. This article considers some of these recent trends, and features expert comment from John Laurens, Head of Global Payments and Cash Management, HSBC and David Koh, Head of Treasury Services, Greater China, J.P. Morgan.
Why finance outside the home market?
David Koh, J.P.Morgan first explains why foreign multinationals are attracted to financing in Asia,
“The main driver for a company’s decision to source financing in Asia is access to liquidity. European markets remain uncertain, and it is as yet unclear as to how and when that uncertainty will be resolved. In contrast, Asia is seeing higher levels of liquidity, with considerable investment appetite amongst institutional investors and banks in Asia with ambitious growth plans in the region. This is encouraging multinational corporations, particularly those with a strategy for growth in Asia, to take advantage of liquidity opportunities, and so we are seeing them borrowing more here in a range of currencies.”
He continues by emphasising that in most cases, this financing is for specific business purposes within the region, as opposed to borrowing in Asia as an alternative to core funding,
“We are not seeing foreign multinationals (i.e., those headquartered outside Asia) borrowing in Asia with a view to repatriating funds, as the largest companies typically find it relatively easy to source funds in their local markets successfully and at a relatively low cost. They are, however, accessing finance to fund specific projects across Asia.”
Onshore RMB financing by foreign companies
2010 saw a continued increase in onshore RMB amongst foreign multinationals, but 2011 presented some challenges owing to the foreign RMB quota imposed by the Chinese government, that has since been lifted. Capital adequacy requirements differ in China, as David Koh, J.P. Morgan notes, which reduces counterparty risk,
“In China, banks’ loan books need to be self-funded through deposits, which is quite different to other parts of the world.”