Best Risk Management Solution Highly Commended: Yanfeng International

Published: Jan 2024
Photo of Richard Ni, Yanfeng International and Cynthia Tchikoltstoff, BNP Paribas.

Photo of Richard Ni, Yanfeng International and Cynthia Tchikoltstoff, BNP Paribas.

Wei Yao

Group Treasurer
Yanfeng logo

Headquartered in Shanghai, China, deep history dating back to 1936. Yanfeng as the most valuable sub-group of SAIC Motor Group (Shanghai Automotive Industry Corporation), is the industry leader serving a wide range of customers globally, ranked as top automotive suppliers worldwide.

in partnership with

BNP Paribas logo

Counterparty risks mitigated with trade finance, working capital and liquidity solutions

The challenge

There is no doubt that the automotive industry is coming out of one of its most challenging periods in history. Electrified vehicles are economically attractive, which leads to the entire global supply chain becoming more complex and diversified. Yanfeng’s treasury team faced three major challenges for making our business apart in the industry.

Firstly, sales challenges and potentially higher counterparty risk in receivables, especially in the US and EU markets. to the geopolitical tension, shortage of chips, managing the impact of economic inflation and tailormade customer demanding, which makes the weakness of Auto industry post-covid. Payments were uncertain, and payment terms was unnegotiable to be extended by some clients. Yanfeng was facing multiple counterparty payment risks.

Secondly, the high demand in working capital for global new programmes investments for which funding is a prerequisite.

Finally, in order to support the more complicated global supply chain shift and growth of cross-border trade flows, the dedicated team in Yanfeng HQ centrally took on a high workload in all treasury functions, ensuring Yanfeng business was consistenly growing in the global market.

The solution

Yanfeng has successfully implemented various programmes, including trade financing, liquidity management and payment flow simplification.

Receivable factoring programmes – the new programme with Citi comprises in two solutions based on the existing AR factoring programmes for EU:

  1. Credit insurance account receivable factoring (CIAR) programme in North America. The counterparty risk is taken by the insurance company.

  2. The rest of receivable factoring programme for a large buyer. The programme leverages Citi’s credit appetite for the buyer and reduces buyer’s risk for Yanfeng as well.

The above programmes have been running successfully, which means Yanfeng can replicate them in other areas where Yanfeng has been awarded a number of new programmes. The solutions significantly mitigated sales risks for Yanfeng from global car manufacturers and shortened days sales outstanding (DSO) from months to nearly zero. The programme enables Yanfeng to expand its customers base with alleviated counterparty risks, which is vital to sustainable business growth.

Working capital solutions – account payable financing programme by Yanfeng China affiliates, via CitiDirect eTrade module (ARDF). The solution allows Yanfeng to access bank funding at payment due day, and extends DPO at low financing cost, improving working capital. Meanwhile, several trading financing programmes with multiple banks. The facility was structured to cover a large supplier base and provided working capital finance against payables providing critical liquidity to Yanfeng. The facility also helps Yanfeng deal with seasonal disparities in working capital requirements.

The company leveraged the global multi-currency cash pooling (MCNP) structure in Citi London, with RMB flowing into the MCNP via the cross-border pooling scheme. The MCNP structure in Citi London performs the role of Yanfeng global financing hub covering nine currencies to support the group’s working capital needs across NAM, EU and APAC.

Leveraging on the bank’s Global Concentration Engine, Yanfeng realised same-day cash sweeping between China and London. Yanfeng’s overseas affiliates can now access sufficient liquidity support from China and repay to China when needed. This structure largely reduced any external financing cost for Yanfeng, given USD and EUR funding was very expensive in 2023.

China cross-border trade payment simplification – Yanfeng was facing an increasing volume of cross-border trade payments since 2022, due to supply chain shift of electric vehicles. However, a lot of manual effort was involved in supporting documentation preparation. Four Yanfeng China affiliates applied for the SAFE pilot cross-border trade payment simplification programme, which waives supporting documents from transaction levels including sales contract and invoices.

This recognition reaffirms our dedication to excellence in managing risks, a fundamental pillar in our company’s success, and it motivates us to continually enhance our treasury operations for a brighter future.

Wei Yao, Group Treasurer

Best practice and innovation

Yanfeng is the first Chinese major corporate to go live with both a credit insurance receivable factoring programme and structured receivable factoring programme in the US and EU, pioneering to all other China headquartered multinational corporations.

Key benefits

  • Cost savings.

  • Process efficiencies.

  • Increased automation.

  • Risk mitigated.

  • Manual intervention reduced.

  • Exceptional implementation (budget/time).

  • Improved key performance indicator (KPI) metrics.

As Yanfeng’s core trade financing bank, BNP Paribas supports the company’s global expansion through addressing its worldwide bank guarantee issuance needs. Leveraging our global presence and strong local network, BNP Paribas was able to implement a robust solution that directly addresses the challenges encountered by Yanfeng. In coming up with this customised solution, BNP Paribas worked closely with Yanfeng in structuring the guarantee terms to meet various requirements and provided insights on local market specifics. The issued bank guarantees for Yanfeng’s overseas subsidiaries allowed the company to streamline it’s guarantee issuance process.

in partnership with

BNP Paribas logo

The Adam Smith Awards Asia is the industry benchmark for best practice and innovation in corporate treasury. The 2023 awards attracted 450 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia

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