The challenge:

With one of the most advanced treasury management models in the industry, Roche has a centralised cash pooling structure managing 90% of its global liquidity. The company’s global cash pool covered 50 countries, 45 currencies and 175 affiliates but did not include subsidiaries in China before 2014 owing to regulatory constraints. “Roche China was isolated from the global cash pool,” explain Mary Wang, Treasury Manager and Jane Jiang, Accounting Manager at Roche China. “Its cash surplus could therefore not be centralised with the group’s global liquidity which was a problem.”

With ongoing RMB internationalisation and the Chinese government’s easing measures allowing cross-border RMB pooling in early 2014, the company identified an opportunity to integrate Roche’s Chinese entities into its global pooling structure. This would decrease the need for external financing and significantly reduce its FX exposure and operational costs.

The solution:

With the launch of the Shanghai Free Trade Zone (FTZ) framework in February 2014, Roche, in partnership with Citi, was one of the first companies to receive People’s Bank of China’s (PBOC) approval to implement a cross-border RMB pooling structure.

Following months of review and consideration between PBOC, Roche and Citi, a structure was approved by the authorities that would allow Roche to facilitate intercompany lending and borrowing with overseas affiliates, which is an extension beyond purely intercompany lending from China.

In addition, as full transparency was provided to the PBOC during the review process, and with Roche’s good standing and performance in China, Roche’s case is a pilot which would help guide regulatory evolution on cross-border liquidity structures in China.

The RMB cross-border pooling structure was established with Citi on a fully automated sweeping platform between China and Hong Kong. This included defining key parameters such as the optimal zero-balance structure, intra-day overdraft facility size, interest rates, control measures on funding resources and utilisation to ensure compliance with PBOC regulations, and reviewing and finalising the agreements for local and cross-border pooling and the facility agreement.

The utilisation of Citi’s Global Concentration engine enables an automated end-of-day sweeping mechanism as well as system parameters which provide Roche the ability to control intercompany lending within the approved parameters. Furthermore, Roche’s cross-border structure is automatically linked to its domestic cash concentration structure in Citi – which gives Roche full efficiency and utilisation of its excess cash in China, and offshore for its working capital needs.

The solution also enables automated reconciliation, and this is further enhanced by Roche’s SAP reconciliation initiative, which feeds the pooling transaction entries into SAP for automatic reconciliation.

Best practice and innovation:

Roche had been a pioneer in RMB internationalisation for both current and capital account items since 2010. Its RMB cross-border pooling structure is a landmark solution that represents the next step in China’s RMB internationalisation reform which is bringing increased operational efficiency to large and multinational companies.

“Besides RMB cross-border pooling, we were also the first company approved by PBOC for RMB cross-border POBO/ROBO and netting. The pooling and netting arrangements will take the company to an even higher level of centralised liquidity and treasury management,” say Wang and Jiang.