The challenge
Linamar wanted an integrated treasury and trade solution to facilitate its increased working capital needs in China. Its key challenges were:
Linamar Wuxi – an extension of payment terms to domestic suppliers, in order to ease the new electric car project and enhance its return on surplus cash.
Linamar Chongqing – as a newly established company, L/C issuance requirements were a priority in order to develop new business partners.
Linamar Tianjin – its local Chinese bank’s online banking support was deemed inadequate. Linamar Tianjin is required to present physical supporting documents for each USD payment and obtain transaction receipts manually.
Linamar China Holding – required a more cost-efficient solution to facilitate capital injection.
In all Linamar entities there were vast inefficiencies in cash flow utilisation compounded by non-standard operational processes between different entities with different local Chinese banks in different cities, and a lack of communication between these banks.
The solution
The following bespoke treasury and trade solutions were implemented in staged phases:
Stage 1 – to improve Linamar’s existing process and operational efficiency of existing service, a streamlined and paperless L/C issuance process and cross-border USD payment process was established using Bank of America’s online banking platform (CashPro Trade + CashPro Online). Enhanced deposit returns via a ceiling interest rate filing at People’s Bank of China (PBoC) further improved the seven-day call deposit return for surplus balances.
Stage 2 – to fill in the banking services Linamar had not started yet, a capital injection through converting onshore entities dividend payments directly in accordance with SAFE registration. A multi-bank solution via its bank’s host-to-host interface with China Construction Bank (CCB), Linamar can both view and operate its RMB account in CCB through its online banking platform. Pan China RMB cash pooling was established for all Linamar entities through the China holding company as pool header. An auto-reporting scheduler was set up to ease Linamar’s accounting reconciliation and cash-flow projections.
Stage 3 – to extend the services to Linamar’s suppliers, Pan China supply chain finance, through the bank’s trade platform, was arranged, enabling Linamar to extend longer payment terms on the one hand and reduce suppliers’ financing costs on the other. In view of the great success in China, Linamar is now introducing this supply chain finance programme to all its other key markets including APAC (India), EMEA and its Canada HQ.
Best practice and innovation
Thorough due diligence with Linamar group – a thorough and in-depth due diligence exercise was undertaken at all levels: with Linamar global HQ to understand its global business expansion plan; with Linamar China HQ to understand its Pan China treasury focus; with each Linamar factory plant in China to understand its daily treasury pain points; including Linamar business teams and supply chain companies.
Full communication with local government – dialogue sessions in advance to reach full alignment on specific solutions.
Pragmatic collaboration with local Chinese banks – Bank of America fully recognised the potential values local Chinese banks can provide and through the multi-bank solution, Linamar can continue to enjoy all the benefits local Chinese banks provide, via the bank’s single CashPro Online platform.
Key benefits
- Streamlined L/C issuance and cross-border USD payment processes.
- Multi-bank solution.
- Pan China RMB cash pooling.
- Enhanced deposit return – additional annual interest returns of RMB1.8m+ due to enhanced rate.
- Capital injection through converting onshore entities dividends – 25% dividend tax savings.
- Pan China supply chain finance – DPO is extended from 60 days to 90 days.
