The challenge:

Cargill operates a regional treasury centre in Singapore, providing credit access and relationship management, funding and foreign exchange services, financial advisory and analysis and cash management solutions to its businesses in the Asia Pacific region.

The regional treasury centre leverages a reference account notional pooling structure to perform inter-company transfers between entities and businesses, to operate a Payments-on-Behalf-of (POBO) and Receipts-On-Behalf-of (ROBO) model and to manage its overall liquidity. Cargill has specific debit and credit rates for each entity that are applied to the reference accounts in the pool, reflecting its transfer pricing policy.

Despite having what seemed like a robust treasury model, Cargill was often left with unanticipated account balances inside and outside the notional pool, from which it did not derive any value. The company found that it had approximately $0.5bn of receipts that were posted with back-valuation every month which it could not utilise for funding, as they were received after the collection cut-off time and were not pre-advised by Cargill’s customers. The unanticipated and back-valued receipts accounted for about 10% of the total value of receipts.

It is an achievement to be recognised in the industry and it is also a great opportunity to benchmark our liquidity solution against other companies.

As Nyet-Sian Kiew, Regional Cash Management Lead, Treasury Asia Pacific remarks, “while Cargill has a medium-term plan to migrate our USD accounts in Singapore to its domicile clearing location in the US to obtain better access to liquidity and cut-off times, we are constantly seeking to optimise yield from unanticipated balances and to reduce costs in the existing reference account notional pooling structure”.

The solution:

Cargill worked with J.P. Morgan, embarking on an innovative solution allowing Cargill to leverage its balances in eligible markets, subject to regulatory approvals, to offset its global service fees.

To implement this, Cargill developed:

• An automated two-way multibank sweep which leveraged J.P. Morgan’s extended USD clearing hours to achieve a true end-of-day zero-balance sweep into the notional pool.

• A net drain sweep with back-value on its notional pool deployed to consolidate long balances in a single account to participate in J.P. Morgan’s Global Earnings Credit Rates (GECR) programme. Cargill implemented GECR in Singapore, Hong Kong, Japan and the US across 11 currencies and over 40 accounts. Earnings Credit Rate (ECR) is used by banks to value balances maintained in accounts. The calculated value (Earnings Credit) is then used to reduce the amount of fees which Cargill is required to pay for the bank’s products and services. Global ECR is an extension of ECR that allows eligible jurisdictions outside of the US to leverage ECR.

Best practice and innovation:

While the GECR programmes have been available for some time in the US, they are relatively new in Asia Pacific. The GECR Programme is an advanced and expanded ECR product which integrates balances and fees from global jurisdictions. The solution uses a relatively complex structure that ties pooled and non-pooled balances together into a GECR programme that is closely linked to Cargill’s operating flows.

Nyet-Sian Kiew concludes: “in partnering with J.P. Morgan, we were able to overcome some of the complex challenges presented by our existing pool structure to achieve benefits quickly and effectively”.