The challenge

In December 2021, Chinese regulators approved a US$9bn acquisition by South Korea’s SK Hynix Inc of Intel Corp’s NAND operations including Dalian Fab in China. The transaction involved a payment of US$7bn by the end of calendar year 2021 and the remaining US$2bn by the end of 2025.

A large portion of the transaction consideration was to be paid in RMB in multiple tranches from SK Hynix Inc to Intel. Intel’s Asia treasury was tasked with integrating the local currency proceeds from China into the global liquidity cash pool at Intel Corp in the US. The source funding currency was in RMB while the global cash pool is operated in USD. Though there are multiple regulatory schemes in China to enable cross-border fund movements, they could not be applied due to the large amounts involved and the strict regulatory controls for cross-border financing.

The key challenges that Intel had to resolve included:

• Working capital centralisation and China regulations: Intel had already exhausted its sweeping quota in its existing foreign currency pool, thus requiring the company to innovate a new solution to close the working capital gap between Intel’s China and offshore entities.
• Treasury operational efficiency: management of multi-billion dollars of proceeds involved an end-to-end process of collection, FX conversion, cross-border sweeping and funds transfer – covering treasury teams in China, Singapore and the US. Access and visibility into these country operations and their bank accounts are crucial to ensure continuity of transactions. Intel partnered with Citi to design a multi-currency, cross-border pooling structure (involving local entities onshore and the offshore treasury hub) and worked with the Chinese regulators to lead a pilot for the PBOC’s advanced RMB cross-border pooling programme in the Shanghai FTZ.

The solution

The structure leverages Intel’s global treasury centre to open a multicurrency free trade zone non-resident (FTN) Account in China to lead the arrangement. The FTN account enjoys a sizeable cross-border lending and borrowing quota and benefits from the flexibility to convert foreign currencies freely. The structure also optimises tax by eliminating the need to have an additional layer of domestic sweeps in the structure. The solution further links the FTN account with a cross-regional cash pool between Asia and the US, to facilitate same day, two-way cross-border sweeping. This enabled seamless, end-of-day cash concentration to connect Intel’s China businesses with its global pooling structure.

Sweeping across participant accounts occurs on a real-time basis based on the actual schedule of proceeds from the divestiture project. This was achieved through a new digital real-time funding service called ‘on-demand sweeps’ (ODS) pioneered by Citi, with Intel as a pilot client. A SWIFTnet H2H was built to ensure the automated process and efficient clearing of all involved instructions, except the ODS which is designed to be self-serviced digitally by Intel on demand.

The solution enables back-to-back FX conversion with same-day value of funds flow across the global, regional and local accounts involved.

Best practice and innovation

Intel pioneered the solution for this multi-billion-dollar, multi-currency cross-border pooling solution from China to its global treasury centre in the US. The innovative, multi-component structure can be leveraged by other companies as M&A activities continue to reach new highs.

“We have pioneered an innovative cash pooling and funding solution that is flexible, automated and scalable which unlocks working capital and addresses global treasury optimisation. The approach could be replicated by other MNCs to achieve optimal two-way funding with reduced borrowing and FX costs,” says Lily Chen, APAC Treasury Director.

Key benefits

• Cost savings.
• Process efficiencies.
• Risk mitigated.
• Improved visibility.
• Number of banking partners/bank accounts reduced.
• Increased system connectivity.
• Future proof solution.
• Exceptional implementation (budget/time).
• Quality accreditation achieved.