Treasury Today Country Profiles in association with Citi

Intertek Group

Intertek Group plc, Winner, Best Cash Management Solution

Maria Logiopoulou, Bank of America Merrill Lynch and Matthew Clarke, Intertek Group plc

This solution demonstrates an entirely new way of moving trapped cash out of China, made possible by recent changes in regulation, which could serve as a model for other global businesses. This new structure is one of the first of its kind and, combined with the RMB tranche in the syndicated loan arrangement, means Intertek is blazing a trail for others to follow.

Photo of Maria Logiopoulou, Bank of America Merrill Lynch and Matthew Clarke, Intertek Group plc.

Matthew Clarke

Group Treasurer

Intertek Group plc is a multinational inspection, product testing and certification company headquartered in London, United Kingdom. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

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The challenge:

China accounts for almost 20% of Intertek’s revenue and for a greater percentage of its operating profit and cash flow, but until recently that cash was ‘trapped’ in China. Repatriating cash from China had been a long standing issue for Intertek, which had previously been done in the form of an annual dividend. This could have been done more frequently, but the process was quite onerous with numerous regulatory sign-offs.

In 2012, the company took part in a pilot cross-border inter-company loan programme with its Chinese bank. It also applied for a quota for its onshore entities to lend to related offshore entities, and was one of the first ten companies to get approval in Shanghai, and the very first in Guangzhou.

“This structure enabled the company to significantly reduce its trapped cash in China, but with some limitations: loans had to be provided via a bullet arrangement, meaning that once a facility had been repaid it was then cancelled and couldn’t be redrawn,” explains Matthew Clarke, Group Treasurer at Intertek.

In 2014 however, regulatory developments gave the company an opportunity to adopt a pooling structure to sweep cash to a central header account in China. At the same time, the need for approval from the People’s Bank of China (PBOC) was relaxed, allowing companies to gain the necessary approvals via their banks.

The solution:

As a result of these changes, Intertek has worked with Bank of America Merrill Lynch to establish a new structure that allows funds to be swept automatically from the China pool to an account in the UK once a week. A target balance of RMB 50m is left in the pool, and sweeping takes place on a one-way basis as was the company’s preference given the location of the treasury team and cut-off times. The sweeping solution was designed to take maximum advantage of the changing regulatory environment in China, to produce a robust but flexible sweep structure and maximize cut-off times for same-day value, all while retaining control and visibility of funds from Intertek’s UK treasury.

This new structure is one of the first of its kind and, combined with the RMB tranche in the syndicated loan arrangement, means Intertek is blazing a trail for others to follow.

“This has allowed the company to significantly reduce its cash requirements in China and allowed treasury to integrate RMB into our global cash management operations just like the other major currencies,” says Clarke.

Best practice and innovation:

Intertek is one of the very first European companies to be able to sweep cash from China to an account in the UK on a weekly basis. This solution demonstrates an entirely new way of moving trapped cash out of China, made possible by recent changes in regulation, which could serve as a model for other global businesses. As part of the solution, Intertek is also one of the very first European companies to have an RMB tranche in their wider syndicated loan facility, allowing them to treat RMB just like other global currencies in their day-to-day treasury management. The design of the sweeping structure has evolved to keep pace with changing regulation, giving Intertek an adaptable yet transparent way of accessing its cash, wherever in the world it is generated.

Key benefits:

  • Process efficiencies.

  • Foreign exchange gains.

  • Risk removed/mitigated.

  • Satisfies evolving regulatory requirements for instance:

    • Makes maximum use of more liberal currency regulation in China.

    • Has proved flexible enough to adapt to changing circumstances.