The challenge

Due to the COVID-19 pandemic, there are growing demands for work/study from home, leading to a worldwide increase in the need for computer and communication devices. IT manufacturing is a capital-intensive industry which is in a constant state of evolution and upgrades. This requires manufacturers such as Hongqisheng to constantly procure and upgrade equipment and machinery parts whilst expanding their production line so they can continue to produce high-quality, state-of-the-art products which meet the latest technological developments and increased demand.

To ensure these requirements are satisfied, Hongqisheng needed to ensure the uninterrupted import of equipment from its key specialist suppliers across the globe, notably in Japan and Taiwan, whilst keeping costs low. Additionally, Hongqisheng’s suppliers require immediate payment whilst optimising financing costs in order to secure their own supply chain and ensure an uninterrupted supply for Hongqisheng.

The solution

Hongqisheng worked with its bank, BNP Paribas, to provide an off-balance sheet solution which comprises the issuance of a usance letter of credit (LC) spanning a year to match the working capital cycle of Hongqisheng.

The LC issuance is based on the requirements of Hongqisheng and its key suppliers with a dynamic cost sharing mechanism dependent on the timeline for the transaction.

The LC is available for pre-payment by suppliers located in different countries at an optimised financing cost leveraging the good rating of the bank.

“Our bank partnered with us to provide a solution that supports the needs of both our company and our suppliers and enables both parties to make sustained advance purchases of materials, parts and equipment,” explains Jian Qin, Finance Manager.

The solution enables Hongqisheng to expand its production line, upgrade its equipment and parts and secure cash flow from operations and finished goods instead of having to rely on external financing.

Best practice and innovation

With close consultation and deep understanding of the industry, requirements and challenges, BNP Paribas collaborated with Hongqisheng and provided a solution which was customised, not only to meet the requirements of Hongqisheng, but also addresses the requirements and financing needs of its suppliers. This is key as it enables Hongqisheng to continue good long-term partnerships with its suppliers providing value-added service and ensuring sustainable supply chain delivering a ‘win-win’ situation for Hongqisheng, its suppliers and the partner bank.

The customised solution is also welcomed by Hongqisheng’s suppliers across different countries and the solution not only leverages on the strengths of each parties’ financial standings but also benefits all parties. The solution which is off-balance sheet for Hongqisheng (a listed company) and optimising its leverage ratios, was built on an internationally recognised trade finance product, LC, which is widely accepted, recognised and governed by international rules.

Key benefits

• Convenient, flexible and dynamic solution.
• Costs optimised.
• Supply chain uninterrupted.
• Secure and timely payment.
• Increased demand satisfied during COVID-19 pandemic.

“This is a win-win solution which not only speeds up the cash flow movement in both the buyer and the seller in a secured manner, it also enables the seller to secure payment at sight after shipment of goods at low financing cost, thus providing the supplier with sufficient liquidity even for large order amounts,” explains Qin.