by Helen Sanders
Global fastening products corporation Würth Group has recently mandated relationship bank HSBC Germany to implement an automated, two-way RMB sweeping solution between China and Germany. The solution enables the group, located in more than 80 countries, to sweep funds seamlessly from China to Germany and vice versa, making efficient use of their global cash balances.
Würth Group was quick to take advantage of the opportunity to include onshore RMB in global cash pools when it was launched in July 2014, and implemented a manual solution within a few weeks of the announcement once the necessary regulatory approval had been obtained.
Würth Group’s cash pooling solution involves a domestic RMB (CNY) cash pool in China that sweeps cash from group entities’ accounts in China into a pool header account. This account is then swept into an offshore RMB (CNH) account in Germany via a special cash concentration account. As CNH is a freely tradable liquid currency, group treasury can then use these balances in the same way as any other currency for group liquidity and investment purposes.
In March 2015, Würth Group mandated long-standing RMB cash management bank HSBC to automate this solution, enhancing operational efficiency on top of financial efficiency. One of the reasons that many organisations that have not already leveraged the ability to do cross-border sweeping in RMB is the need to comply with regulatory conditions. As Gabriele Schnell, HSBC’s head of payments and cash management in Germany explains, however,
“A critical issue for corporations that wish to include RMB in global cash pools is compliance with regulatory conditions, such as limits on the amount that can be swept into and out of China. This monitoring and compliance is now automated through HSBC’s global liquidity management engine, which brings peace of mind and significant efficiency benefits for clients.”
While cash pooling is a well-established technique, there are some specific issues that corporations need to consider when including RMB into global cash pools, in particular the need for regulatory approval and limits to the amount that can be included in cross-border sweeps. Würth Group has an entity located in the recently-expanded Shanghai Free Trade Zone (SFTZ) so the approval and compliance process is relatively straightforward. Although entities located outside of the SFTZ are also now eligible for two-way RMB cross-border sweeping, the conditions are more comprehensive; however, as long as the company fulfils the necessary regulatory requirements, compliance monitoring is automated though HSBC’s global liquidity platform.
The benefits of cash pooling are well-established, and the ability to include RMB, particularly on an automated basis, is a leap forward for many corporations that have struggled to integrate RMB within a regional and global cash management strategy. In many cases, difficulties accessing excess liquidity in China has restricted organisations’ appetite for investment in China. As Patrik Imholz, Head Treasury Management, Würth Finance International B.V. outlines however, “RMB sweeping enables us to manage the liquidity of our Chinese group companies centrally from Germany and to integrate it into our global cash management. Surplus liquidity can be used to finance other group units, so insufficient liquidity can be balanced out by cross-border transfers, while interest and foreign currency expenses can decline as a result. Currency risks can also be managed centrally from Germany.”
RMB was ranked the fifth currency in the world for global payments by the end of 2014, according to SWIFT, and the value of RMB payments increased by more than 100% during the year. Gabriele Schnell, HSBC Germany continues,
“The more payments are settled in RMB, the more valuable automated RMB cash concentration becomes for German companies”.
“HSBC has already implemented liquidity settlement manually for several clients. Automation means greater efficiency and security for our customers, helping them to use the cash in their business globally in the most valuable way possible.”
Germany is now the fourth country in which HSBC fully-automated RMB two-way cross-border cash concentration in addition to Hong Kong, Singapore and Great Britain. This mandate paves the way for other corporations in Germany to leverage their RMB liquidity more effectively, and across Europe more widely. Gabriele Schnell, HSBC Germany concludes,
“HSBC is well-established as a strong RMB cash management partner for corporations globally, and we continue to engage in a strategic dialogue with clients of all sizes and industries. Not only are we seeing strong interest in RMB opportunities amongst our clients, both in Germany and worldwide, but also from corporations with which we have not had a relationship previously.”