Treasury Today Country Profiles in association with Citi

TDK

TDK China Co Ltd, Winner, Best Liquidity Management Solution

Photo of Aman Singh Chadha, Citi and Kentaro Notsuka, TDK China Co Ltd.

TDK wanted to include China into its global netting centre and this solution is the first netting filing deal approved by SAFE Shanghai (excluding the SFTZ). This was completed within 20 working days and implemented within just one month. The solution also incorporates the first fully-automated ‘against-the-sun’ US dollar cross-border sweep structure.

Photo of Aman Singh Chadha, Citi and Kentaro Notsuka, TDK China Co Ltd.

Kentaro Notsuka

Senior Director, Finance & Accounting Dept, China Operation Group

Established in 1935 and headquartered in Japan, TDK is a comprehensive electronic components manufacturer and leads the world in magnetic technology.

in partnership with

Cross-border netting and US dollar cross-border sweeping against-the-sun solution

The challenge

TDK had been leveraging Citi’s netting platform to perform its netting cycles globally. With more than 30 subsidiaries, the structure covers multiple currencies ie USD, EUR, JPY, GBP, HKD and SGD.

As a big commercial market for growth, TDK wished to include China into its global netting centre, given the high volumes of cross-border transactions and value to and from the country. Without a netting structure, TDK China affiliates previously settled inter-company obligations with each other individually, with each TDK affiliate sourcing its own foreign currency deals, and settlement occurring monthly on an ad-hoc basis. Consequently, this resulted in a large number of cash flows and payment transactions, with multiple FX deals for each affiliate.

The solution

TDK implemented a FCY cross-border netting solution, whereby TDK affiliates receive and pay a single transaction from and to the netting centre. These transactions occur in the affiliates’ own base currencies, with settlement occurring on the netting transaction date only. As a result, the number of transactions per participating affiliate was reduced to only one. With only one FX deal per currency pair at the netting centre, this significantly reduces the inter-company total settlement amount to around 50%, thereby reducing TDK operational costs.

Diagram 1: USD cross-border pooling solution between TDK Japan and TDK China
Diagram 1: USD cross-border pooling solution between TDK Japan and TDK China

Source: TDK China Co Ltd

However, since netting settlements still require different sub-entities in different cities in China to prepare funding separately, the efficiency of netting is not truly 100% for all netting participants. Managing the funding gap in order to support domestic operations was a manual and troubling daily process.

In 2016, to address the funding problem, TDK further implemented a USD cross-border pooling solution between TDK Japan and TDK China, which is the first global fully automated against-the-sun cross-border sweeping structure embedded with a domestic cost efficient pooling solution.

Best practice and innovation

Notwithstanding TDK’s success in improving its liquidity management positions at the Group level, the solutions implemented by TDK were pioneering for a number of reasons. Firstly, TDK’s FCY cross-border netting was the first netting filing deal approved by SAFE Shanghai (excluding the SFTZ). In fact, the filing was completed within 20 working days and implementation was completed within one month.

Secondly, the USD cross-border pooling solution between TDK Japan and TDK China, was the first global fully automated against-the-sun cross-border sweeping structure embedded with domestic cost efficient pooling solution.

Key benefits

  • Cost savings on domestic entrustment loans, thanks to the efficient reversed sweeping structure.

  • End-to-end fully automated cross-border borrowing and repayment through a specially-designed cross-border and domestic structure.

  • Elimination of duplication of against-the sun sweeping and streamlined regulatory reporting.

  • Automated control of cross-border lending or borrowing quota.

  • Balance sharing between domestic accounts to support X-B netting settlement without additional funding preparation.

  • The entire structure of FCY cross-border netting and USD cross-border pooling saved around US$1m in FX and financing costs, and reduced the number of cross-border payment/collection transactions from more than 200 to only one each month.