The China Rongsheng Heavy Industries (RSHI) Group Holdings is a leading large-scale heavy industry conglomerate with operations covering shipbuilding, marine engineering, power engineering, construction machinery and other related fields. The China RSHI Group was successfully listed on the Main Board of The Stock Exchange of Hong Kong on 19th November 2010.
Liang Tang
Deputy Treasurer
Liang studied for a Master’s in Corporate Management at Tongji University and undertook a period of work experience at Berlin Technical University. He is Deputy Treasurer at China Rongsheng Heavy Industries Group Holdings.
How is your treasury structured?
Rongsheng has a vertically centralised treasury structure. We have two production bases located respectively in Rugao, Nantong and Hefei, Anhui Province. The group headquarters are in Hong Kong and Shanghai, with treasury department composed of seven employees, responsible for FX and interest rate risk management, financing, cash management and bank relationship management.
Which are your main cash management banks?
Our main cash management banks include Bank of China, the Export-Import Bank of China and China Development Bank, which are also our biggest credit banks.
How did you choose your banks?
The ship-building industry differs significantly from ordinary manufacturing industries in that even a single product can have great value and the building cycle is very long. Therefore, during the building process the shipyard will authorise a bank to issue a refund guarantee to the ship-owner based on building milestones. Currently, the guarantee issuing banks that are most acceptable to overseas ship-owners are Bank of China, the Export-Import Bank of China and China Development Bank.
Meanwhile we also leverage the combined advantages of different banks, such as the trade financing of Bank of China, the project loans of China Construction Bank, and the project mortgage of China Everbright Bank.
Do you pool your cash? If so, is it a notional pool, ZBA or hybrid structure? What are the biggest problems you face when pooling your cash?
Due to the nature of our industry, we are not able to physically pool our cash yet, because most of our collections have to be swept to the specified account of ship-building business. However, we do use centralised management to get a real-time understanding of group cash position and future cash flow.
Do you have debt? If so, what’s the breakdown – bank loans/bonds?
We have very diversified financing instruments, channels and technologies, including bank loans, trust, notes, factoring, trade finance, and so on. We also pay a lot of attention to bonds as an important financing instrument.
If you have bonds outstanding, what are their maturities/coupons?
We have bonds with less than one-year in maturity which account for about 40% of the total outstanding bonds, and those with more than one-year in maturity accounting for about 60%. This is because we have always been actively optimising our debt structure and mitigating liquidity risk. We have been able to maintain our consolidated cost of debt to be around the benchmark interest rate of the central bank.
Do you have a revolving credit facility (RCF)?
We have revolving credit facilities with some Chinese banks.
Do you have a credit rating?
Currently we are AA rated by domestic rating agencies. We have always believed that acquiring an international credit rating will be a major focus in the future, for it will enable us not only to bridge the company with investors, but more importantly, to leverage the industry rating criteria to streamline, enhance and improve our management.
We also stay focused on the bond market, assigning specialised teams to keep a close eye on factors such as the liquidity, issuance, investor categories and spread changes of offshore US dollar bond, offshore CNH bond, and onshore bill and corporate bond markets.
Do you have a TMS and/or ERP system? Do spreadsheets still have a part to play in your treasury?
We are now using Oracle’s ERP system, and at the same time we’re also exploring and demonstrating the modules and functionality settings of TMS. At the current time, however, spreadsheets are still playing an important part in statistical analysis and data transmission.
What are your FX exposures?
Most ship-building contracts are settled in US dollars, whereas most of our expenses, are in RMB, which is also our reporting currency. Therefore, from a currency respective, the exchange rate risk we’re facing is the risk of US dollar depreciation, and in nature it is partly fair value risk and partly cash flow risk.
Our hedging strategies are to try our best to arrange transaction structures or financial measures to achieve internal hedging, followed by using financial instruments with simple structures, shorter terms, better liquidity and controllable risks to conduct external hedging.
What do you do with your short-term cash?
As a manufacturing enterprise, for short-term ‘sedimentary’ money to make possible interim payments, we generally choose investment products with better liquidity to reduce the costs of holding cash. We have learned through experience that we can use investment products with longer duration and less risk for longer-term ‘sedimentary’ money. Anyway, liquidity and security are the primary factors to consider when dealing with short-term money.
Do you hedge your interest rate risk?
Interest rate risk is also included in treasury’s risk management responsibility. Now we are actively managing the interest rate of some balance sheet items whose fair value and future cash flow will change due to interest rate changes.
What terms are your suppliers/customers on?
We settle with customers mainly in the form of advance receipts, and customers will make payments based on confirmation documents issued by a third-party authority. With suppliers, we usually settle in advance payments, letters of credit, notes or accounts payable, dependent on the various markets to which the product is supplied.
Have you sought to improve your payments/receivables cycles?
We have always been trying to achieve shorter DSO and longer DPO by enhancing our strategic arrangements and management levels. Shorter DSO is mainly dependent on the percentage of advance receipts, production arrangements, timeliness of collections and the use of financial measures. Longer DPO is achieved mainly through integrating the supply chain, optimising the supply cycle and employing financial measures.
What does the future hold for your treasury – what projects/upgrades do you have in the pipeline?
As our business continues to expand and the international environment we are facing becomes increasingly complex, we are also facing more and more uncertainties as we conduct treasury management. To further co-ordinate the internal demand for and supply of funds is an overall task of the company, for which we need not only to adjust management architecture and organisational structure, but also to support with information technologies.
What are your thoughts on the sovereign debt crisis in Europe?
The European debt crisis has had significant effects on those banks who had bought large amounts of PIIGS debt. Many banks began to lay off staff, sell their assets and experience a decline in business globally, which in turn had direct negative effects on enterprises: tighter liquidity and continuously high cost of financing.
The European Union is not a single country with independent power to develop economic policies, so dealing with the debt crisis is both a gaming process and a process of interests balancing. Yet to rely simply on controlling public finance expenditure, cutting down government deficit and engaging in debt swaps are just temporary solutions. Only by figuring out how to restore economic growth can we get to the root of the problem.
What about the internationalisation of the RMB?
The government has provided access for RMB outflows and inflows through measures such as RMB cross-border trade, currency swaps and RMB direct investments. Offshore RMB reserves have been increasing rapidly, and investment products and agencies willing to hold RMB are also growing constantly. Yet we have not seen an obvious trend for agencies to use RMB as their investment currency and reserve currency, which we believe will take some time. However, for companies like us who use RMB as their reporting currency, if more overseas customers or suppliers are willing to settle contracts in RMB, the exchange rate risks will be greatly reduced.
