The challenge:

In the last few years, TRW’s treasury has been working to optimise the company’s cash management processes within China. However, a number of inefficiencies remained.

When a new regulation was announced in February 2014 allowing companies in the Shanghai Free Trade Zone (SFTZ) to take part in a pilot US dollar cash management scheme, TRW’s treasury team saw the opportunity to apply to use this pilot scheme to achieve some additional benefits.

TRW’s primary goals in participating in the pilot were to set up a US dollar cross-border cash pool linking China and other countries that would also allow the company to include its China payables and receivables in its global netting system. It hoped to achieve better control over FX exposures while also reducing FX volumes and costs.

The solution:

TRW appointed Bank of America Merrill Lynch as its major cash management bank in China in 2012 and the bank has been providing a number of services, including establishing the RMB cash pool, foreign currency payments and collections, trade finance solutions and credit support. On the strength of this relationship, TRW asked BAML to work with the company on the pilot US dollar cash management project.

The tailored US dollar cash management solution allows TRW to engage in two-way sweeping of cash between the company’s concentration account in the SFTZ and other accounts around the world.

The project kicked off in June 2014 and the next stage has been to prepare the relevant material to submit for approval to the Shanghai SAFE, as entry to the pilot scheme is dependent on case-by-case approval. The scheme was implemented in November 2014.

Best practice and innovation:

While TRW is not the only company to take part in this pilot, the project has a number of features which make it particularly innovative. TRW is not only planning to set up a domestic US dollar pool: the company is also planning to link the pool to cash pools in other countries, making this a cross-border sweeping structure. In addition, TRW is planning to combine the cross-border sweeping with a netting project, enabling the company to include its China flows in the global netting system.

Another differentiator of this project is that TRW currently has a legal entity established in the SFTZ that will be used as a pool leader for the new structure – an approach that has not been implemented by any other companies to date. Looking forward, the company is hoping to expand the pool to include euro balances, creating a multicurrency pool which would be unique in the market.

“The Shanghai Free Trade Zone opens up broad opportunities for TRW to further maximise its working capital management and risk management. The new platform will provide synergies for TRW regionally and globally,” says Jane Hua, Asia Pacific Treasurer for TRW.

This is the latest in a series of innovative projects undertaken by TRW’s treasury team. The company has also been actively adopting other new products and schemes, such as mobilising cross-border flows using RMB capital injection, shareholder loans and dividend payments.