Photo of Manoj Bhatia, Citi and Lucia Wang, Sanofi.

At the end of 2015, Sanofi China began a global initiative to fundamentally reshape its liquidity management processes in China. The result is a highly-efficient and integrated cash pooling structure which incorporates four layers of their corporate structure.

The challenge

Operating in China for over 30 years, Sanofi has more than 15 domestic entities. Each has different cash flow patterns and positions which presented liquidity management and working capital challenges. As liquidity and funding of these entities were decentralised, Sanofi relied primarily on manual entrustment loans for intercompany borrowing.

As Sanofi’s second largest market after the US, the company plans to step up its push into China in the next five years as part of a wider expansion into emerging markets where it sees a large part of its future growth. To support this growth, Sanofi’s treasury team in China was looking at how to manage the China liquidity in an automated and cost-efficient manner; at the same time, though, integrating it with a global liquidity management system. This would reduce the reliance on external financing for Sanofi globally and improve the return on surplus cash.

The solution

Starting at the end of 2015, in partnership with Citi, Sanofi China launched a global initiative to fundamentally restructure its liquidity management processes in China and the integration of China liquidity and funding with the global liquidity framework. The solution includes:

• A highly efficient and cost saving domestic pooling structure.
• Centralised major payments and collections process to achieve full automation at the cash pool level.
• Interest optimisation for the surplus liquidity in China, with an optimally designed account structure to meet different funding purposes on a timely basis.
• RMB cross border two-way pooling integrated with Sanofi’s London treasury centre account, with automated sweeping to manage the amount threshold and timing within the regulatory principles and to aid liquidity funding back to the China entities when there are temporary shortfalls.

Best practice and innovation

On the implementation of the China liquidity management solution integrated with the global liquidity structure, Sanofi China is now able to centralise a large value of liquidity to HQ, enhancing overall cash efficiency globally and reducing banking costs. The entire global solution was implemented in less than three months due to the close collaboration between Sanofi China and HQ, along with Citi partners in all locations. (On average, a similar implementation could take up to six months).

This award means Sanofi is once again recognised as a top performer, echoing the great quality of its products and services offered to patients and society. Personally I also feel very proud of being a key contributor, together with the fantastic team behind me, to witness Sanofi’s continued success. This indeed urges us to keep up in quality, innovation, and pretty much everything we do as a leading player so that we can keep bringing positive impacts to the industry.

Lucia Wang, Head of China Treasury, Sanofi (China) Investment

The solution also includes the following best practices:

• Domestic China Zero Balancing Arrangement tax-saving structure – this unique solution allows Sanofi to sweep funds horizontally between entities that have long and short positions, thus reducing duplicated entrustment loans which would have occurred if all sweeps were conducted through the header entity. This enables Sanofi to sweep on a more efficient basis, thus reducing taxes on the resulting entrustment loans.
• Fully automated cash concentration, integrating the liquidity management practices of the Chinese subsidiaries, to Sanofi headquarters’ CNH account with Citi London.
• Successful partnership between Sanofi China and Citi China and Sanofi’s French headquarters to submit and receive PBOC filing approvals to implement RMB cross border pooling within just one week (on average the filing period takes around two to three months).
• Cross-border RMB two-way pooling accommodating over RMB1bn funds movement on a daily basis between China and London, valued for the same day.
• Centralisation of payments and collections processes into the pooling accounts, supporting all Sanofi’s China entities.

Lucia Wang, Head of China Treasury comments: “For multinational corporates, implementing an integrated, end-to-end liquidity management solution incorporating China into the global pool continues to be the holy grail. While several companies have implemented similar solutions, few have achieved end-to-end liquidity efficiency by incorporating four layers of the corporate structure and facilitating daily funding sweep between China and overseas HQ in line with today’s regulatory guidelines.”

Key benefits

• Process efficiencies.
• Cost savings.
• Interest optimisation.

Key learning points

We believe that maximising utilisation of resources by integrating them better will always increase cost-efficiency and therefore bring value in many ways. This is especially true when we talk about cash. With this belief, we keep pushing ourselves in exploring new options and innovative ideas to synergise resources and collaborate better with our customers, partners, competitors and regulators. Such efforts and passion always pay off in the end.