The challenge
Like many start-ups, NIO has faced cash investment challenges, evolving as it has moved through different phases of its business life cycle. It has experienced rapid growth, combined with a torrent of investment capital, which created vast cash management challenges. NIO has a high cash burn rate due to the high cost of research and development. In addition, NIO’s treasury department needed security for its cash, USD liquidity across time-zones and above all, to avoid loss of capital.
As NIO has thrived, continuing to fundraise and grow, its domestic business has become a thriving source of RMB cash, but this comes with challenges, together with an ultra-low yield environment in many parts of the world and China’s imminent new Asset Management Product (AMP) rules led to a reassessment of its liquidity management.
The solution
NIO chose to partner with J.P. Morgan Global Liquidity (JPM GL) after its 2018 initial public offering. JPM GL’s USD liquidity solution satisfied NIO’s low risk tolerance, need for timely access to dollars and, importantly, its desire for security.
Choosing JPM GL also meant 24/7 cross-market operational efficiency. NIO’s treasurers in China can quickly manage settlement of capital raised regardless of time zones or business hours. The financial institution also helped NIO’s treasury team enhance its governance, ensuring its liquidity management fulfilled both its own business objectives and US share listing requirements.
Ready cash and secure reserves remain mission-critical to NIO. To achieve these at the same time as new AMP rules were about to go into effect required proactivity. With JPM GL’s help, NIO reassessed its cash investment approach early, understood the consequences of asset manager, adopting two RMB liquidity solutions, one catering to multinational corporations and the other to local companies, both of which invest in high quality issuers. By using the combination, NIO maximised its cash investment return opportunities.
NIO also benefitted from JPM GL’s Morgan Money, a multi-currency, 24/7 trading and risk management platform.
Best practice and innovation
Achieving prudent yield enhancement while meeting liquidity and security requirements are global best practices, particularly relevant in China in 2021 as corporations must revisit their cash investment approaches before the new AMP rules come into effect.
Given NIO’s current stage in the business life cycle, it was looking for prudent, market-competitive return opportunities for some of its domestically generated cash. Yet meeting its newly broadened appetite for returns proved challenging at a time of ultra-low rates. Cash segmentation and adopting two different money market strategies (both subject to stringent credit quality frameworks) have positioned NIO to meet these needs.
The RMB liquidity solutions that NIO has adopted offer an effective means for China’s corporations, all of which are facing a new cash investment market landscape.
By investing in high quality institutional money market solutions in their overall portfolios, they can achieve diversification, especially important when China’s new regulations are phasing out principle-guaranteed products.
“Morgan Money demonstrates innovation as a trading and risk management platform operating across currencies, offering operational efficiency and effective controls, securely and across time zones,” says Sasa Wang, Director, Treasury.
Key benefits
- Key benefits
- Security.
- Liquidity.
- Ease of operation and round-the-clock, high quality client services.
- Multi-currency capabilities.
- Enhanced yield opportunities.
Diversification does not guarantee investment returns and does not eliminate the risk of loss.
NOT FOR RETAIL DISTRIBUTION: This communication is for intended recipients only.The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment or interest thereto. This document is confidential and intended only for the person or entity to which it has been provided. Reliance upon information in this material is at the sole discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any particular receiver. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are those of as of the date of issuance.
Investment involves risks. Any investment decision should be based solely on the basis of any relevant offering documents such as the prospectus, annual report, semi-annual report, private placement or offering memorandum. For further information, any questions and for copies of the offering material you can contact your usual J.P. Morgan Asset Management representative. Both past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast will come to pass.
J.P. Morgan Asset Management and/or any of its affiliates and employees may hold positions or act as a market maker in the financial instruments of any issuer discussed herein or act as the underwriter, placement agent or lender to such issuer. The investments and strategies discussed herein may not be suitable for all investors and may not be authorized or its offering may be restricted in your jurisdiction, it is the responsibility of every reader to satisfy himself as to the full observance of the laws and regulations of the relevant jurisdictions. Prior to any application investors are advised to take all necessary legal, regulatory and tax advice on the consequences of an investment in the products.
09cj212810020209
