The city-state just pips Hong Kong as preferred base for finance operations as firms look to align their long-term growth strategy with rise of the “Asian Century”.
Multinational corporates are responding to rise of the “Asian Century” and investing in expanding their treasury footprint across APAC, with Singapore just ahead of Hong Kong as the most favoured location for basing regional finance operations.
The findings have emerged from an EY survey of treasurers and strategic stakeholders with regional and global treasuries based in Singapore. The study explains that over the last few decades multinational corporates have been centralising their treasury functions across various legal entities and geographical jurisdictions. This allows them to effectively meet the needs of the business, optimise working capital, improve visibility on borrowing positions, reduce external borrowings and hedge currency and interest rate risks. The global and regional treasury centres are typically based in locations where they can meet the needs of business operations in a cost-efficient and time-critical manner.
With demands on treasuries growing and global economies become increasingly influenced by the “Asian Century”, multinational corporates have recently become much 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 centres in the city-state, interviewees for the survey say this is a secondary factor. In any case, a similar incentive introduced by Hong Kong in 2015-2016 had levelled the playing field.
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 a centralised 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.”
Rather more important for firms in deciding to choose Singapore for basing treasury operations is the city-state’s proximity to regional business headquarters and the breadth and depth of its financial ecosystem: “These are key considerations that are driving decisions on regional treasury locations,” says the report.
It adds: “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.
Breadth and depth
With 4,200 regional headquarters based in the city-state, Singapore is home to the largest number of regional headquarters in Asia Pacific. This is followed by Hong Kong with 1,389, Tokyo with 531, and Shanghai with 470.
The city-state boasts the presence of 132 commercial banks and 26 merchant banks. Seventy three percent of survey interviewees work in treasuries that have been operating in Singapore for five years or less and 45% represent firms that have a global turnover of more than US$20bn.
In further drawing out Singapore’s merits versus Hong Kong, 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 report says the depth and breadth of the financial ecosystem in the treasury location is also critical as regional treasuries seek to tap into 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.
Seah adds: “The abundance of financial and professional services organisations 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 digitalisation efforts reshape businesses and treasury functions. The financial ecosystems in these countries are more sophisticated and robust, which allow for transformation and optimisation of treasury processes to better serve the evolving needs of treasury centres.”
According to the EY report, secondary drivers that steer decisions on treasury locations are:
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.
Liveability: the ease of relocation, lifestyle and ability for families of talents to adjust easily.
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 optimisation. With its various attributes and strengths, Singapore remains an attractive and strategic regional location for corporate treasuries in Asia Pacific.”