The challenge

Motus is required to adhere to local exchange control regulations implemented and monitored by the South African Reserve Bank (SARB).

SARB has enabled South African businesses with global operations to have a simpler experience regarding the cross-border movement of funds through these businesses establishing as Domestic Treasury Management Companies (DTMCs). A DTMC, established within the group, typically serves as a holding company for foreign assets and is thus also deemed a non-resident for the purposes of exchange control.

By being deemed a non-resident, as opposed to a resident like its ultimate parent, this entity experiences less stringent applications of the exchange control guidelines, allowing for an easier day-to-day flow of cross-border payments activity.

Motus established a DTMC which has been tasked with all treasury activity of the group. Before the solution with J.P. Morgan, the main funding account of Motus Capital was held with Nedbank (various currencies). However, Motus still needed to maintain a domestic ZAR account, per the regulation, which proved restrictive. Typically, ZAR accounts need to be held domestically by resident South African entities. This resulted in working capital inefficiencies due to time-zone and funding clearing constraints for both domestic and international operations, often leading to pre-funding for an obligation.

The problem was further compounded by global entities with excess cash that could not be timed with group requirements, leading to inefficient use of facilities by subsidiaries.

The solution

J.P. Morgan proposed a multicurrency, multi entity notional pooling structure based in a single time-zone and location, London. The solution enabled the notional concentration of available liquidity and funding access to Motus Group’s international participating entities.

However, the challenge faced was the inclusion of Motus’ South African DTMC funding accounts within the pooling structure, a task not achieved by any bank previously.

The solution enables Motus’ entities globally, to participate in a pool, drawing funds in the required functional currency. It also removes the need for additional borrowings to provide funds to all the various operations and outposts of the group.

By including a ZAR account in the notional pool, the group can link its domestic and international operations in a single location.

All group balances in the pool can be viewed centrally, allowing treasury to make accurate decisions with regards to Motus Group’s daily funding requirements. In a world where borrowing costs are increasing, and the purposeful deployment of funding is key to an institution’s success, the solution enables efficiencies, cost savings and a simplified treasury experience.

Best practice and innovation

Utilising notional pooling structures is not a new concept for corporates around the globe. However, a South African corporate has not deployed a structure that enabled both its foreign and domestic operations to have complete control over its liquidity through a single set-up. This is because a ZAR account could not be offshored by entities that were deemed South African residents.

However, with a DTMC afforded the classification of a non-resident entity, the team challenged that this particular entity could offshore their ZAR account in line with the interpretation of the regulation. This resulted in the team seeking approval from the SARB to offshore a ZAR account for the DTMC, allowing for its participation in a notional pool in London.

As no precedent for this structure existed, the task of navigating the legal parameters ensued. A robust review by both the Motus and J.P. Morgan attorneys in South Africa and UK jurisdictions was required.

Through careful deliberation and participation from all parties, the legal framework was agreed, solidifying the success of the proposed structure.

Key benefits

• Cost savings.

• Process efficiencies.

• Improved visibility.

• Future-proof solution.

“This project brought together two institutions with a wealth of human capital to achieve what is a first for a South African corporate. The two teams were committed to collaboration and forward-thinking and achieved what would not only benefit our company but has chartered a path for other South African corporates to follow.”

Kobus Volschenk, Group Treasurer