Photo of Zhang Lei, Shao XinZhi and Wang Wei, Haier Group and Martijn Stoker, J.P. Morgan.

A pay and receive on-behalf-of (POBO/ROBO) model is at the heart of this cash management solution which operates alongside a cash pooling structure which aggregates cash in six currencies – USD, EUR, JPY, RMB, SGD and NZD.

The challenge

Haier established a Centralised Trading Centre (CTC) in Singapore to facilitate its global supply chain and manage procurement and sales. The CTC treasury operations were centrally managed by Haier Finance Company (HFC), the Group’s in-house bank (IHB) in China. Haier wanted to enhance the CTC so that it could:

• Achieve best-in-class management of its cash concentration, with greater transparency.
• Manage intercompany trade flows better and optimise credit support.
• Deliver higher quality customer service.
• Integrate its offshore business successfully with the CTC based in Singapore.

The solution

To achieve the above aims, Haier partnered with J.P. Morgan to establish a multi-currency notional pool that was designed to facilitate a receive-on-behalf-of (ROBO) and pay-on-behalf-of (POBO) structure for the CTC, as well as improve management of the CTC’s cash and payment operations.

Haier’s single-entity multi-currency notional pool structure in Singapore was set up to facilitate POBO and ROBO for the China-registered financing company using a non-resident account in Singapore. J.P. Morgan worked with Haier to develop a treasury transformation strategy to integrate its recently-acquired United States (US) business (GE Appliances) into its global treasury model and connect its US businesses into the Global Cash Pool.

The industry-leading customised solution provides:

• A simplified cash concentration solution with innovative liquidity management and multibank sweeping and greatly expanded visibility over cash and physical cash concentration in the US to manage the liquidity of its US businesses.
• A customised credit facility arrangement to meet Haier’s intraday and short-term working capital needs, with an advanced operating credit solution that offers flexibility and accessibility for overall cash management.
• Automated funding of outgoing payments, and the capability to make Automated Clearing House (ACH) payments and print cheques when needed.

As Shao XinZhi, Corporate Accounting and Treasury Director explains “This ground-breaking solution aggregates cash in six currencies – USD, EUR, JPY, RMB, SGD and NZD and is highly flexible and scalable, giving us the capability to make changes easily as our business expands.”

Best practice and innovation

The regulatory restrictions imposed on a Chinese-incorporated legal entity deploying a ROBO/POBO structure outside of China require an in-depth understanding.

While the previous model required manual intervention for processes such as foreign exchange (FX) forecasting, payment initiation and balance monitoring, Haier reduced the operational burden by outsourcing these and other manual functions to J.P. Morgan. Just-in-time funding, which allows Haier to inject funding to a single account to fund payments globally, was also outsourced. Other manual processes for funding, sweeping, FX and investment transfers have been automated wherever possible.

The POBO payables solution leverages leading-edge technology from J.P. Morgan ACCESS^® channel platforms. ACCESS^® OnlineSM and ACCESS^® Host-to-HostSM provide a secure and seamless integration with Haier, while ACCESS^® Liquidity SolutionsSM provide a robust information reporting with ACCESS^® FX and Corporate QuickPay for payments. The innovative combination of enhanced remitter identification and the Virtual Reference SolutionSM, as well as Receivables EdgeSM for collections reporting, have greatly improved Haier’s rate of automatic receivables reconciliation.

The structure developed for Haier is the first instance of a China-based corporation combining a notional pool with POBO/ROBO, and positions Haier as having one of the most sophisticated cash management structures in the market.

The solution in the US expands the US Earnings Credit Rate (ECR) concept across global balances and fees, bringing the depth and breadth of Haier’s relationship to its full potential. This ECR solution automatically ‘rewards’ Haier for maintaining demand deposit account balances, with a new operating account model that passes along balance value in line with bank value.

Key benefits

• Improvements to cash management processes.
• Greater visibility into its cash flow.
• Simplified account structure.
• Tailored liquidity account structure.
• Centralised reporting, increased control and yield.