The challenge
With the travel industry hard hit by the COVID-19 crisis, Samsonite, as a key manufacturer of travel goods, was not immune. Samsonite’s sales in China fell sharply as the pandemic swept across the country; while it had RMB150m in its cash reserves in January, by April, it was servicing RMB100m in bank loans for urgent working capital needs like paying overhead expenses to keep businesses operational.
While the cheapest means of funding would be through freeing up internal cash, moving funds in and out of China vis-à-vis its overseas entities was a very manual and time-consuming process, involving a lot of paper documents and the need for regulatory approvals on a case-by-case basis. Accessing bank loans remained an expensive alternative.
Samsonite China needed a treasury solution to mobilise funds in and out of China as necessary, and one that could be implemented quickly due to its urgent liquidity needs.
The solution
In June 2020, Samsonite China implemented a one+two RMB two-way cross-border sweeping structure, with one Chinese entity and two overseas entities based in Singapore and Australia.
This is the first time such a cross-border structure has been set up for a company with just one Chinese entity that is based outside of the Shanghai Free Trade Zone (SFTZ); Samsonite China’s entity is registered in Ningbo in Zhejiang province.
This was possible because of Samsonite’s lobbying of the China central bank under the nationwide cross-border RMB two-way sweeping regulatory scheme, in partnership with J.P. Morgan. The People’s Bank of China gave the approvals within a week of the submission of documents; implementation was also extremely prompt, with the structure ready within a month of regulatory approval and the company’s readiness with documentation.
Samsonite China can now sweep a maximum of RMB150m in cash surplus to its entities in Singapore or Australia or borrow a maximum of RMB150m from the entities. This is fully automated, where Samsonite can change the sweeping sequence and trigger timings as it sees fit. Any surplus cash in China can also be ultimately swept to Samsonite’s global entities indirectly, via a regional sweeping structure from Singapore/Australia through to Hong Kong, and from Hong Kong to global via a global sweeping structure.
Best practice and innovation
Samsonite China broke new ground by being the first corporate in China with a one+two RMB two-way sweeping structure. Previously, companies with this structure would typically have a minimum of two entities in China. The handful that have benefitted from this structure with one legal entity typically have the entity registered in the SFTZ.
The solution will also help the company free up surplus cash trapped in China going forward.
Key benefits
- Effectively alleviates the liquidity crunch.
- Reduced idle cash in China.
- Optimised working capital.
- Improved operational efficiency.
The solution not only helped to alleviate the liquidity crunch Samsonite faced at the height of the crisis by providing a backup channel to draw down working capital, it also put in place an automated and sustainable sweeping structure to move surplus funds out of China, preventing trapped cash while finessing the movement of funds within the Samsonite Group that needed the cash the most.
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