The challenge

Victory Technology (Hong Kong) Limited (Victory HK) is the trading arm of the group. It had been a borrowing client of UOB China for four years under the AAA (a multinational company) Supplier Finance programme to finance its account receivables (AR) in USD.

In 2022, as the hiking USD funding costs brought heavy pressure on the client’s financial cost control, the company reached out to banks for a solution to achieve:

• Lower overall financial cost on the AR Finance.

• Minimal change in current procurement model (eg no material impact on existing commercial contract, invoice and settlement module).

• Controllable foreign exchange (FX) exposure.

Several solutions were discussed, and the key challenges were:

• Victory HK is the trading arm with a non-resident account (NRA), which is subject to strict local regulation of foreign exchange settlement.

• The uncertainty of other currencies with low funding cost, eg EUR, which would bring additional FX and interest rate risk to the client.

The solution

The solution is a cross-currency AR financing programme for NRA through a well-structured and compliant process. By conducting a comprehensive examination of Victory HK’s supply chain, UOB China ensures a thorough understanding of the unique requirements and risks involved.

Best practice and innovation

The key demonstration of best practice lies in the pre-agreed exchange rate for financing the USD AR by cross-border RMB. This transparent arrangement protects both Victory Group and UOB China from potential exchange rate fluctuations, providing stability and certainty in the transactions.

Moreover, the innovative aspect of this solution lies in the smooth transition from USD to RMB and vice versa, without creation of new transactions due to the existing USD to RMB conversion within the group. UOB China facilitates the process by ensuring that on the maturity date, the buyer repays in USD, UOB China efficiently converts the USD to RMB in Victory HK’s NRA to settle the outstanding finance. This seamless currency conversion mechanism not only streamlines operations but also enhances client satisfaction.

Key benefits

• Cost savings.

• Risk mitigated.

“This solution’s exceptional regulatory adherence, market foresight and commitment to RMB internationalisation sets a new standard for cross-border financial services in China.”

Xu Yong Hong, Finance Controller