3rd June 2019 – A survey of treasurers and strategic stakeholders with regional and global treasuries based in Singapore revealed the reasons behind the city-state’s position as a preferred regional treasury location in Asia. The EY report Singapore: a strategic regional treasury location examines the primary and secondary factors that influence multinational corporates in their decision on where to locate their regional treasury.
Over the last decades, multinational corporates have been centralizing their treasury functions across various legal entities and geographical jurisdictions. This allows the organization to effectively meet the needs of business, optimize working capital, improve visibility on borrowing positions, reduce external borrowings and hedge currency and interest rate risks. The global and regional treasury centers are typically based in locations where they can meet the needs of business operations in a cost-efficient and time-critical manner.
According to the report, with the growing treasury demands and as global economies become increasingly influenced by the “Asian Century”, multinational corporates have become more focused on expanding their global or regional treasury footprint within Asia, with Singapore and Hong Kong being the two leading preferred locations.
While the Finance and Treasury Centre (FTC) tax incentive in Singapore had played a key role in attracting treasuries to set up their regional centers in the city-state, the interviewees mentioned that this is a secondary factor. In addition, a similar incentive introduced by Hong Kong in 2015-2016 had leveled the playing field.
Ms. Tan Bin Eng, EY Asean Business Incentives Advisory Leader, Partner, Ernst & Young Solutions LLP says: “Many assume that tax incentives play a key role in motivating centralized treasury location. However, we may be overplaying the importance of tax incentives, which is insufficient to replace the need for a strong commercial and operating environment that are conducive to treasury activities. For example, the US and Europe continue to be attractive global treasury locations, even though they may not all provide attractive tax incentives.”
Primary criteria: proximity to regional business headquarters and breadth and depth of financial ecosystem
Being close to the regional business headquarters and having access to a well-developed, well-regulated and open financial ecosystem were key consideration and factors that drive decisions on regional treasury locations.
Proximity to the regional headquarters allows for better engagement with the management, particularly in running the long-term treasury plans and investment requirements more effectively. Treasurers can also better work with the business to balance intercompany lending and borrowings across different markets, achieve shorter response time on critical funding decisions, and manage central and in-country banking relationships more effectively.
Ms. Seah Li Yun, Partner, Financial Services, Ernst & Young LLP says: “Singapore is home to the largest number of regional headquarters in Asia-Pacific, followed by Hong Kong. Generally, Hong Kong is a preferred regional business headquarter location for companies that have a heavy focus on China and North Asia, while Singapore is preferred by those looking to serve the wider Asia-Pacific region. The regional business headquarters are usually established much earlier, and the treasury operations naturally followed them.”
The depth and breadth of the financial ecosystem in the treasury location is also critical as regional treasuries seek to tap on solutions for funding and hedging needs, and advisory for managing investments and cross-border flows. Survey respondents highlighted that the integration and interaction with the wider finance ecosystem is important and valuable, as it promotes the conduct of more sophisticated treasury activities in hedging, risk management and foreign exchange transactions.
Ms. Seah adds: “The abundance of financial and professional services organizations in Singapore provides treasuries ample support in financial advice and consultancy solutions. Additionally, incentives and initiatives to drive FinTech adoption in Singapore and Hong Kong have spurred the establishment of innovation labs by financial institutions. These innovation and digitalization efforts reshape businesses and treasury functions. The financial ecosystems in these countries are more sophisticated and robust, which allow for transformation and optimization of treasury processes to better serve the evolving needs of treasury centers.”
The report also shared the secondary drivers that steer decisions on treasury locations:
- Legal and regulatory system: a strong legal system is necessary to ease management of business contracts and relationships, given the cross-border treasury activities of multiple group legal entities and external service providers across jurisdictions.
- Political stability: political stability allows for greater consistency and predictability of long-term economic policies.
- Tax system and availability of incentives: a simple and efficient tax system as well as strong tax treaty network to mitigate the impact of double taxation.
- Diverse workforce and talent: the availability of relevant skilled resources and quality of the workforce.
- Livability: the ease of relocation, lifestyle and ability for families of talents to adjust easily.
Ms. Seah concludes: “As multinational corporates continue to focus on innovation and FinTech initiatives, the digital ecosystem in Singapore will provide opportunities for them to transform their treasury processes and achieve optimization. With its various attributes and strengths, Singapore remains an attractive and strategic regional location for corporate treasuries in Asia-Pacific.”
