Finding a Cure for Cash
By Eleanor Hill, Editor
By adopting an innovative physical cash pooling solution Aspen Pharmacare, in partnership with BNP Paribas, has unleashed a host of improvements – from interest cost savings to simplifying the reconciliations process. Here’s how the teams achieved this joint project, which is a first of its kind in South Africa.
Cash remains king, and as with every monarch, it demands the closest attention when challenges are afoot. For Durban-headquartered Aspen Pharmacare (Aspen), the largest drug company in Africa, cash management duties stem from sales of medicines in 150 countries.
But with bank accounts dotted across Europe, largely resulting from several strategic acquisitions that placed the continent as its biggest territory by revenue, low interest rates and rising debt servicing costs were proving challenging. The company also had some unique requirements arising from its expanded company structure; requirements that called for an ingenious solution from primary European banking partner, BNP Paribas.
Tackling the euro issue
Turn the clock back to 2017. With euro interest rates at rock bottom, and facing difficulties moving money between locations, analysis showed that Aspen’s significant euro cash deposits were not being worked to its best advantage. Moreover, as a net borrower of euros, the company was also incurring interest on debt. This was a set of circumstances that Michael Shuttleworth, Group Treasury Executive, Aspen, understandably refers to as “frustrating”.
Having discussed Aspen’s position with BNP Paribas, Shuttleworth explains that a cash pooling solution was chosen, with the aim of sweeping cash from the company’s decentralised operations in Europe, to greater effect. But there were some hurdles to navigate before the structure could be put in place.
Aspen’s strategic central treasury function is domiciled in South Africa and is registered as a Treasury Holdco at the South African Reserve Bank (SARB) and for tax purposes. As such, it is granted certain exemptions from exchange control restrictions, enabling it to move money in and out of South Africa and benefits from certain relief from a tax perspective.
Shuttleworth explains that Aspen already had a notional pool, run by First National Bank in South Africa, and that it was naturally keen to use its Johannesburg-based treasury entity as the master account holder for an extended pooling structure. However, this was something that had never been done before. The company therefore had to work with BNP Paribas to seek approval from SARB and seek legal advice to ascertain whether the structure was legally valid and enforceable.
After some discussion, it was decided that physical cash pooling was the most viable option for the extended structure, given legal and regulatory challenges and the fact that a notional structure would require pledging of the company’s cash balances as collateral, creating further complexity.
Once the pooling concept had been “bedded down” and support had been secured by Aspen’s European business units, taking a few months to finesse, the implementation could begin in earnest. During this period, Aspen and BNP Paribas collaborated to meet SARB requirements, proceeding to set up intercompany loan and legal entity documentation. This whole process, Shuttleworth says, was made easier than it may sound, thanks to regular bi-weekly project management calls with BNP Paribas, and a bespoke workflow dashboard that highlighted outstanding items to expedite.
In fact, the structural arrangements for the innovative extended pooling solution took around eight months to complete, with phase one – accounting for about 95% of participating cash balances – going live with the first sweep in April 2019. The second phase was completed in March this year, bringing an additional 12 bank accounts into the structure. A third phase will add yet more countries, enabling even greater extraction of Aspen’s euro balances.
“It was quite a journey, being a complex project for Aspen and BNP Paribas,” recalls Mehta. “We set up a project plan covering 30 countries and involving up to 90 BNP Paribas stakeholders, and we established great momentum. It has been a resounding success for everyone involved.”
Thomas Harden, Senior Relationship Manager, EMEA, BNP Paribas, notes that as the push for digitisation continues across the industry, the shift away from original paper-based documentation has happened fast and banks have had to adapt quickly. For any intensively paper-based process, implementation ease and speed can be derived from selection of the right partner from the outset; an experience that was evident in Aspen’s work with BNP Paribas.
Bhairav Mehta, the bank’s Head of Cash Management & Corporate Liquidity & Investments, South Africa, picks up on this theme, adding that BNP Paribas is rolling out a digital Know Your Customer (KYC) programme for global cash management clients. “As such, even greater levels of automation should be anticipated. In combination with our investment in an array of other digital solutions, such as mobile banking, and our deep involvement in the SWIFT gpi ‘track and trace’ project, the long-term BNP Paribas digital agenda is adding a great deal of value for corporate treasurers.”