The challenge:
Freescale Semiconductor (China) Ltd. (Freescale) is a wholly-owned subsidiary of Freescale Semiconductor Ltd. which has traditionally had large amounts of cash trapped onshore in China. The company was therefore looking for a solution that would enable it to complete cross-border sweeps and centralise its payments, leveraging its global treasury operations in order to reduce cost and improve overall efficiency.
The opportunity to do this was afforded to the Freescale treasury team in 2014 thanks to regulatory liberalisation in China. Immediately after the regulatory change was announced, Freescale began working with its banking partner in the end-to-end submission for approval of its application to implement a cross-border sweeping facility to the regulator – the State Administration of Foreign Exchange (SAFE).
The solution:
Freescale finally obtained formal approval from SAFE on 30th December 2014, and completed its first US dollar cross-border sweep transaction just two weeks later, on 12th January 2015. In addition, Freescale completed the first on-behalf-of payment transaction from its parent company in Hong Kong, enabling it to also achieve cross-border centralised payments and collections in quick time.
Of course, implementing a new practice following a regulatory change can be a daunting task, as a pilot programme involves product complexity and cross-function involvements. To achieve this Freescale partnered closely with J.P. Morgan to obtain approval from SAFE in all the relevant jurisdictions so that it could implement cross-border pooling, sweeping and lending and cross-border centralised payments and collections.
The scope of the Freescale solution, covering both cross-border sweeps and cross-border centralised payments and collections, has enabled treasury to:
-
Integrate its global pooling and netting infrastructure and utilise its capital more efficiently.
-
Reduce the physical movement of funds in China through netting and by sweeping surplus funds from USD settlement accounts in China and cross-border, to a Freescale account in Tianjin.
-
Improve its funding efficiency globally.
-
Standardise Freescale’s settlement flows as well as risk controls in China.
Best practice and innovation:
Foreign currency cross-border pooling, sweeping and lending as well as cross-border centralised payments and collections were ground-breaking deals for Tianjin under the new SAFE cross-border pilot scheme. Following the change in regulations, the SAFE branch in Tianjin has approved only five companies on a trial basis in 2014. Freescale was the first company in the market to complete a transaction successfully in Tianjin. These transactions have also resulted in Freescale becoming the first multinational corporation in Tianjin to package the different programmes together in a complex way under the SAFE Pilot Scheme.
For Tianjin, a strategically important harbour city, the Freescale deal has been recorded as a classic case by SAFE. The regulator has since been sharing details of the Freescale initiative with other companies that wish to emulate and achieve the same goals, and have also demonstrated that it had a successful management process for implementing the pilot scheme.
Moreover, the new solution was swiftly and smoothly implemented in the midst of uncertainties which a regulatory change may sometimes bring about, and the implementation of the solution has had a tremendous impact on the value of the company.
