Photo of Hymie Shapiro, Crispen Katsukunya and Michael Shuttleworth.

First of its kind physical cash pooling structure in South Africa

The challenge

In 2013/2014, following two material acquisitions, Aspen substantially expanded its commercial and manufacturing footprint in Europe. Pursuant to a rigorous request-for-proposals process, BNP Paribas was selected as Aspen’s key transactional banking partner across Europe. Over the years, the entities which comprise Aspen’s European operations had collectively built up material euro cash deposits. Owing to the low interest rate environment, these cash deposits were effectively idle. At the same time, Aspen (outside of Europe) was, and still is, a net borrower of euros, incurring interest on this debt. Aspen had explored bilateral intragroup loan agreements as a means to facilitate better use of the idle European cash balances, but this proved to be inefficient and too complex. Consequently, Aspen was seeking a cash pooling solution that would enable it to harness its European cash balances more effectively.

One unique aspect of Aspen’s structure is that its treasury company is domiciled in South Africa and is registered as a treasury holding company with the South African Reserve Bank. As such, it is granted certain exemptions from exchange control restrictions that enable it to move money in and out of South Africa. Aspen wanted to use this entity as the master account holder for the proposed cash pooling solution, but this was something that had never been done before. The company therefore obtained a legal opinion to determine whether the structure was legally valid and enforceable, and also sought and received specific approval from the South African Reserve Bank to implement the structure.

The solution

Initially the company considered the use of a notional pooling structure. However, after seeking advice from its partner bank, BNP Paribas, Aspen concluded that the legal and regulatory considerations would be too onerous. A further obstacle was that a notional structure requires each participant to pledge its cash balances as collateral, which would have created additional complexity.

Consequently, the decision was taken to pursue a physical cash pooling solution that would facilitate daily sweeping of debit and credit balances from each participant’s bank account to the master account. This involved reviewing local regulation and compliance considerations in each relevant country, as well as putting in place appropriate legal documentation and defining intra-day limits for each participant’s bank accounts. The Aspen treasury team engaged with head-office and local stakeholders to secure their buy-in by explaining how the cash pool would operate and what the benefits would be for each of the participants as well as for the Group as a whole.

Once the decision was taken, setting up the structure took around eight months, with phase one (which comprised 20 participant bank accounts, accounting for 95% of the potential participating cash balances) going live in April 2019. Phase two (which comprised an additional 12 participant bank accounts) was subsequently implemented in March 2020.

Best practice and innovation

Historically, South Africa’s exchange control restrictions have made it difficult for companies to achieve cross-border cash pooling structures. This was the first time that a South African company had been appointed as the master account holder of a European cash pool.

More broadly, the cash pooling solution represents the latest milestone in Aspen’s longer-term journey towards more efficient cash management and centralisation of risk management within the Group.

Key benefits

• Better use of idle cash.
• Substantial cost savings.
• Reduction in bilateral intragroup loans.
• Enhanced Group liquidity position.
• Centralisation of European liquidity risk management.

“Following the implementation of this innovative cross-border physical cash pooling solution that is the first of its kind in South Africa, we have been able to reduce complexity and risk, as well as deliver substantial economic benefits for the cash pool participants and for Aspen as a whole,” says Michael Shuttleworth, Group Treasury Executive.

“Aspen’s achievement of bank account rationalisation, liquidity management and cash flow visibility across Europe and beyond is very impressive indeed. This is especially a matter of pride for us as this was made possible by leveraging on BNP Paribas’ cash management capabilities of end-to-end ERP integration, physical cash pooling and bank account reconciliation,” says Bhairav Mehta, Head of Cash Management & CDL, BNP Paribas South Africa.

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