Honeywell is a $31 billion manufacturing and technology company with operations in 95 countries and 100,000 staff. Treasury for the Asia-Pacific region is managed from Honeywell’s treasury centre in Shanghai. This month we talk to Pui Yee Lee, Director of International Treasury, about cash management practices and managing FX risk in Asia.
Pui Yee Lee
Director of International Teasury
Pui Yee joined Honeywell’s European Treasury organisation, based out of Brussels, in 2002.
In February 2006, she relocated to Shanghai and assumed the role of Director of International Treasury with responsibility for all treasury activities within the Asia-Pacific region. Prior to Honeywell, Pui Yee accumulated nine years of banking and investment management experience at Development Bank of Singapore (DBS) and Government of Singapore Investment Corporation (GIC).
Pui Yee is a CFA and holds a Master’s of Business Administration from INSEAD.
Honeywell is a $31 billion diversified technology and manufacturing leader. We have four lines of business: Automation and Control Solutions; Aerospace; Transportation Systems and Speciality Materials. In the context of Asia, our footprint is across the entire region, where all four businesses are represented.
What areas are you responsible for?
The treasury organisation in Asia-Pacific is responsible for all cash and banking activities that originate out of the Asia-Pacific region. This represents over 100 legal entities across 12 countries. In terms of scope of coverage, my areas of responsibility are segregated into cash management, foreign exchange risk management, as well as trade and customer finance activities – such as bank guarantees.
How is the treasury structured?
The entire team is currently located in Shanghai. The team has a total of six people including myself. I head up the team, and I have four regional treasury managers and one treasury administrator who report to me directly. Each treasury manager is responsible for providing treasury coverage to a selected number of countries. Specifically, I have one treasury manager focusing on China, the second focusing on North Asia (excluding China), the third focusing on south-east Asia, and the fourth focusing on India and Pacific.
To put things in perspective, the treasury organisation in Asia-Pacific is part of the wider corporate treasury family. In the US, our corporate treasury team is based in Morristown, New Jersey – where our corporate headquarters are located. In Europe, the primary location is Brussels, where our in-house bank is located. The three different treasury centres have always been around. That said, we have been reinforcing the addition of talents and resources into the Asia-Pacific team here, and that is because like many other companies, Honeywell’s growth has been focused on this part of the world. As such, we need to ensure that business growth in this region is given the proper treasury support. The Asia treasury centre was originally located in Singapore; however, as we started to beef up our corporate functions in Shanghai over the past couple of years, the treasury organisation also moved over.
How is cash managed within Asia Pacific?
The overriding philosophy for us is to use one partner bank per country. As far as possible, we try to concentrate our banking operations with the banks providing us with revolving credit facilities. By minimising the number of banking relationships and rationalising the number of bank accounts, we aim to achieve the desired cash visibility and cash control. Wherever feasible, we also put in place domestic cash pools so that we can concentrate the cash that we have in each country.
Once we have managed to attain the desired cash visibility and cash control at each of our country locations, we then decide on how the cash can be most efficiently utilised. Where possible, we sweep all excess cash in the region to our in-house bank in Brussels for further re-deployment. However, if capital controls prevent us from moving funds across country borders, we then ensure that the excess funds are invested domestically in accordance with Honeywell’s investment guidelines.
What sort of FX exposures do you have?
We hedge two types of FX exposures:
- Transaction exposures which are the forecasted exposures that we have for the coming year, and;
- Balance sheet exposures
Given that Honeywell is a global company, we have exposures to most currencies. Currently, the bulk of these exposures are hedged by a global foreign exchange hedging programme which is run out of corporate treasury in Morristown. The role of the treasury team in Asia-Pacific is to help the businesses in this region to identify their exposures, and ensure that these exposures are properly reported to corporate treasury in Morristown so that the necessary hedges are taken.
Having said that, during 2007 my team will take over some of the FX hedging that is currently done in Morristown. Specifically, my team will be responsible for the FX hedges that relate to selected Asia-Pacific currencies. We began mapping out the process and rolling it out at the end of 2006.
What challenges have you encountered in China specifically?
I would say that the challenges I am facing are similar to those encountered by other corporate treasurers operating in China. In terms of cash concentration and control, the banking landscape adds additional complexity. While we already have a partner bank in place, local banks are indispensable in the context of China cash management. As a result, the challenge is to find a balance in the relationship that we have with our local banks as well as our partner bank.
Our desire for cash concentration, cash control and cash visibility is constantly challenged by the fact that we still have a proliferation of bank accounts with multiple banks.
Another challenge that we have encountered is in finding suitable investment instruments that yield an attractive market return and yet comply with Honeywell’s internal investment guidelines. This is an area of focus for us given that the regulatory environment in China limits our ability to move excess cash out of the country.
How have you addressed these challenges?
I would say that the momentum is there and we have the treasury infrastructure in place that would allow us to overcome some of these challenges. For example, we have already implemented a renminbi cash pool. The next step is to drive increased usage of the cash pool accounts in order to make sure that we get the desired cash concentration. In terms of good investment opportunities, we are constantly trying to look for higher yielding products, like liquidity funds, to drive up the returns that we get out of our renminbi cash.
What are your plans for the next twelve months?
For a start, we will continue to fine tune the cash management operations in the region, making sure that our cash management infrastructure works seamlessly on the ground. We will also be exploring the idea of implementing a regional cash pool to complement our existing domestic cash pool structures in the region.
As our cash balances in the region continue to grow, we will continue to search for investment vehicles that will bring competitive market returns in accordance with Honeywell’s internal guidelines. In addition, we will also be working closely with our colleagues in Tax to explore alternative cash deployment strategies.
As I mentioned earlier, on the FX side we will be bringing some of the FX hedging for Asia currencies back to this region, rather than concentrating it out of the US.
Finally, in terms of the bank guarantee portfolio, there will be a very strong drive to streamline the existing processes and clean up the bank guarantee portfolio in Asia-Pacific. This is in the context of providing greater clarity to the roles and responsibilities of affected functions within Honeywell, so as to ensure greater accountability at each stage of the issuance process.
In addition, we are also in the process of reviewing the outstanding portfolio to ensure that there are no obsolete bank guarantees outstanding and also that the pricing is competitive.
