The challenge
In 2022, FrieslandCampina (FC) completed a series of investments and divestitures as it worked to optimise its production network and brand portfolio. It sold off its infant formulation production site in Xiushui, China to a local peer Yili Group. As a result of this sale, the domestic cash pool had an influx of cash. During this time, the company, faced with a considerable increase in commodity dairy prices, was forced to increase prices globally. Volumes then came under pressure with the soaring prices, especially in Q422. Therefore the outbound cash flow from Asia to the company’s Head Office was of utmost significance.
China traditionally has stringent capital controls which causes difficulties to multinational companies (MNCs) like FC to set-up a sustainable cross-border liquidity management structure to centralise and optimise their CNH overseas. Given the large amount of excess cash from the sale of its business and the requirement to repatriate cash quickly with minimal operating requirements, the company worked with Citi to link its domestic cash pool with the company’s existing offshore cash pool.
The solution
Citi advised and supported FC on the re-construction of the domestic cash pool to optimise the outbound cash flow. Despite the Covid-related lockdown in China, the bank worked with SAFE to procure the relevant approvals within a short space of time.
The solution delivers the following:
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One stop solution. No additional bridging account is required – therefore saving on the efforts to open a brand-new account to achieve this purpose.
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Same-day fund transfer between China and the Netherlands.
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Two-way cash sweep between China and the Netherlands.
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Ability to repatriate both trapped cash and collections generated onshore.
I am deeply honoured to have received the Highly Commended award for Best in Class Treasury Solution in the PRC. This award is a testament to the hard work, dedication and innovation that our team has put into our work. We are more committed than ever to pushing boundaries and achieving even greater heights.
Jana Er, Senior Treasury Manager
Best practice and innovation
The bank’s proposed RMB cross-border pooling solution consists of three key points:
Structure design
The structure requires an entity that is registered in Shanghai Free Trade Zone (FTZ).
FrieslandCampina Branding Management (Shanghai) Co Ltd (FCBM) was nominated to be a leading company in the cash pool. FCBM would be required to open a RMB Special Account under the proposed structure.
Semi-automatic two-way sweep to give the FC China team better control on their domestic cash pool position. The bank pre-checks the documents required for PBOC filing for FC and was able to ensure PBOC reviewed and approved the structure setup to be pooled overseas.
Under the regulations, this is considered as an intercompany loan and the principal amount should be repaid annually whilst the interest is calculated and repaid into the China domestic cash pool.
Regulatory compliance
Citi recognises the importance of adherence to the local regulations of setting up such a structure. One of the bank’s key strengths is the ability to navigate the complexities of such structures with the local authorities.
The bank facilitates communication and obtains timely feedback from PBOC and related Chinese regulators. Bearing in mind that during the period when these discussions were initiated, China was still in a lockdown situation.
There is no borrowing quota or lending quota limitation in the proposed structure.
Innovative proposal
Citi is the first bank to launch an automatic RMB cross-border pooling solution inside the Shanghai FTZ. With this solution, FC can include China in the global liquidity management structure to achieve greater efficiency.
Key benefits
