Treasury Practice

Problem Solved: Linlin Wu, Honeywell (China) Co., Ltd

Published: Aug 2009

Due to growth in China, Honeywell China decided to look for a US dollar cash pooling arrangement to concentrate the company’s cash balances in the country and reduce external funding costs. After a request for proposal (RFP) process, the company awarded the mandate to Citi for its overall performance based on the scoring matrix designed by Honeywell China.

Linlin Wu

Treasury Manager

Headquartered in New Jersey in the US, Honeywell International is a Fortune 100 diversified technology and manufacturing leader. The company has a long history in China dating back to 1935, and Honeywell (China) Co., Ltd currently has over 30 legal entities across the country.


Successful growth efforts in China meant that Honeywell (China) Co., Ltd (Honeywell China) had seen a significant increase in its cash balances. Of this cash balance, 65% was denominated in renminbi and the remaining 35% in US dollars. Honeywell China already had a renminbi pooling system in place, but there was no such arrangement for the US dollar funds, as Linlin Wu, Treasury Manager explains: “Our US dollar cash balances were highly decentralised, with balances being held in various bank accounts with different banks. This made it difficult to get cash visibility as well as the control that we needed from a treasury perspective.”

The proliferation of US dollar accounts resulted largely from the regulatory framework surrounding foreign currency bank accounts in China. For example, cash balances have to be segregated, even if they belong to the same legal entity. Using entrustment loans to manage company cash was ruled out as a viable option as the company considered the arrangements to be cumbersome.

As a result, the company decided to look for a suitable US dollar cash pooling arrangement to concentrate the company’s cash balances in China and reduce external funding costs. “Additionally, we wanted to streamline our banking relationships and leverage our partner bank for tangible bottom line savings and process improvements. It was also important that the US dollar cash balances should be available at short notice in case funds were needed elsewhere within the company,” says Wu.

Since US dollar cash pools are a relatively new product in China, there were no suitable existing structures in place that Honeywell China could replicate. As such, Honeywell treasury defined specific features of the cash pool before sending out an RFP to ensure that the solution would meet both company and regulatory requirements.


“We invited eight banks to participate in the RFP process – six foreign banks and two local banks – and we set up a two-stage selection process,” explains Wu. Factors that were taken into consideration included: pricing, footprint of the bank, cash pool structure, interest allocation mechanism, e-banking capability as well as system requirements and capability to get central bank clearance. Previous US dollar cash pool experience and the level of service on offer were also important. The final mandate was awarded to Citi for its overall performance based on the scoring matrix designed by Honeywell China.

The solution that was chosen was based on a three-tier automated zero-balancing account (ZBA) entrustment loan structure with participants’ operational accounts in the lowest tier, loan accounts in the second tier and the pool header in the third tier. Using this structure ensures no co-mingling of funds and simplifies interest allocation. Other useful features of the solution include two-leg ZBA sweeping at the end of each day and two-leg reverse sweeping at the beginning of each working day. Implementation work, which was undertaken in three stages, began whilst waiting for regulatory approval from SAFE so that the cash pool could go live shortly after approval was received in August 2008.

Citi’s innovative solution has provided significant benefits to Honeywell China, such as higher investment returns – the proportion of cash actively invested has doubled from 30% to 60%. Other benefits have included: a reduction in bank fees, increased operational efficiencies and enhanced regulatory compliance. In addition, a consolidated overdraft facility and separate payment and collection routes have reduced the administrative burden of monitoring the company’s cash balances in different bank accounts (ie settlement accounts and loan accounts).

As well as providing competitive interest rates (pegged against the USD LIBOR rate), Citi’s solution also gave Honeywell China the scalability of structure required for easy inclusion of new participants into the pool, in particular Honeywell China’s joint ventures (JVs). “As such, the cash pool has a special feature that tracks the aggregated amount contributed by each participating JV and also limits the withdrawal amount of each participating JV to the total of contributions it has made. We have already included one JV into the cash pool and we certainly hope to include more in the future,” concludes Wu.

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