The challenge:

These rule changes include the ability to extend the usage of RMB for overseas financing, freeing two-way RMB cross-border sweeping, centralising RMB cross-border settlement with gross-in or gross-out netting and simplifying the documentation processes.

To take full advantage of these regulatory changes, the company, through its five legal entities and one branch office in China, looked to establish a twoway RMB cross-border sweeping structure, allowing for greater efficiency in the utilisation of its funds in China and moving its trapped cash out of China.

The solution:

Working with J.P. Morgan, Bunge established a two-way channel to move funds between its China headquarters in the SFTZ and its Regional Treasury Centre (RTC) in Singapore. This was achieved by setting up a two-way RMB-denominated cross-border sweeping structure in the zone.

The cross-border cash sweeping solution can be used to make intercompany RMB loans from the Shanghai entity to the RTC in Singapore, as well as from the RTC to the Shanghai entity, and daily sweeping is possible. In doing so Bunge leverages the cash from China to reduce debt at the group level at each quarter-end or year-end so that the balance sheet can be managed more effectively. “The processes for lending from the RMB cross-border account to the overseas subsidiary account, as well as for repayment from the overseas sub-account to the RMB cross-border lending account are fully automated,” says Dundee Zhang, China Treasury Manager at Bunge.

Furthermore, Bunge’s SFTZ entity can also lend and borrow from other affiliates in China, based outside the SFTZ, through an existing China cash pool which integrates Bunge’s domestic cash pool with the overseas liquidity structure (through a multicurrency notional pooling in Singapore). Bunge uses the onshore RMB cross-border lending account to make multiple drawdowns and multiple repayments.

While there is no regulatory restriction on the lending and borrowing limit, Bunge partners with J.P. Morgan to monitor the transactions very carefully because PBOC requires that the source of funds and utilisation have to be within its pre-approved limits.

Best practice and innovation:

Bunge used a highly innovative sweeping structure and a market leading liquidity portal to deploy cash from its China operations far more effectively, by lending RMB to overseas affiliates and integrating its funds from China into its global treasury management platform, resulting in improved efficiency and lower financing costs and risk.

Rather than developing a straightforward solution and implementing a standard approach, Bunge leveraged both its internal knowledge and J.P. Morgan’s expertise to develop a more complex solution that took full advantage of the regulatory changes. Bunge was thus able to structure the solution so that its entity in the SFTZ can lend and borrow from other affiliates in China that are outside the SFTZ through an existing China cash pool, which has enabled seamless integration of its domestic cash pool with its overseas liquidity structure.

“Additionally we have reduced our onshore excess cash and lowered offshore funding costs and our cash is now managed much more efficiently and effectively,” concludes Zhang.