Cash & Liquidity Management

Intertek Adam Smith Webinar

Published: Feb 2016

Bringing the cash home

Intertek Group

Adam Smith Awards Winner – Best Cash Management Solution

The era of trapped cash in China is over. Hear how one of the trail-blazing companies in cross-border RMB established their market-leading structure and how you can too.

This was a major issue for this company until it introduced a trailblazing solution which Matthew Clarke, Group Treasurer at Intertek is willing to share with you. China accounts for around 20% of Intertek’s revenue and an even greater percentage of its operating profit and cash flow so the need to repatriate the cash back to the UK was a major challenge. This solution takes maximum advantage of the changing regulatory environment to deliver a robust, yet flexible, sweeping structure to maximise cut-off times for same-day value. Intertek applied for a quota for its onshore entities to lend to related offshore entities and was one of the first ten companies to get approval in Shanghai, and the very first in Guangzhou.

This webinar was held on Wednesday 3rd February 2016.

Download slide pack

Questions asked throughout the webinar

  • PBOC has just tightened control on cross-border loans a few weeks ago, any advice on the impact and solutions? (18:52)
  • Does the cross-border sweeping utilised by your company still need to be converted from a loan to a dividend on an annual basis? (27:13)
  • You said your structure has not been affected by the recent restrictions. Is this because the pool is a net lender into China, or do you have another form of structure? (30:34)
  • Does the pool suffer any FX losses or gains due to the CNY/CNH FX difference? (31:55)
  • What advice would you give other corporates with trapped cash in China, particularly given the recent restrictions that we’ve alluded to? (33:16)
  • Is there anything you would have done differently, with the benefit of hindsight? (35:02)
  • Through the cross-border loan approach, can CNY be exchanged in China into GBP before sending back to the UK? Or does it have to be sent back to the UK in CNY and then converted in the UK market? (36:59)
  • One of your previous responses suggests you have had FX gains or losses resulting from your RMB cross-border cash pool. Can you give a simple example as to how an FX gain or loss would arise? (38:11)

Additional questions:

When you refer to Shanghai are you in the free trade zone or just a Shanghai company?

We have entities in both. Our particular structure is not from the FTZ.

Central bank of China has just tightened control on cross-border loan a few weeks ago, any advice on the impact and solutions?

The situation remains fluid and depends on each companies circumstances. My recommendation would be to stay in close dialogue with your relationship banks and monitor the situation closely. To the extent you haven’t already you should consider back up alternatives.

Any indication when this suspension could be lifted and what caused it?

The situation is a response to the pressures on the currency to try to stem external flow of capital. It is not clear at this time how long the suspension will apply.

Is the dividend cash repatriation route recommended? What’s the withholding tax to pay?

For us dividends are the principal method for profit repatriation. This applies to all jurisdictions we operate in. WHT rates vary across entities and jurisdictions.

The first sentence means that it is not more possible to transfer cash in excess from China through the cash pooling but it is just possible to send there cash to maintain the zero balance?

My understanding is that inward sweeps are still permitted under the 2-way sweep structure. The concern is around outflows. As our solution is not 2-way I recommend speaking with a bank adviser to get the latest position on this.

What was main reason why cashpool sweeping was not suspended?

There are a number of different structures available. Certain of these structures are currently subject to a suspension.

From Tax perspective, for cross border pooling the offshore entity need to give interest at arm’s length to the local entity without incurring a loss itself from the pooled cash. How do you handle that?

Again I can’t comment on the application of the suspension across all structures. Ours is not a Shanghai FTZ cross-border pool.

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