Treasury Practice

Problem Solved: Wei Ming Ho, TE Connectivity

Published: Nov 2014

TE Connectivity (TE), a $14 billion global technology leader in designing and manufacturing connectivity and sensor solutions for a variety of industries, was using a time-consuming and manual process to minimise idle cash balances and optimise cash requirements in and out of China. The company’s implementation of Citi’s automated RMB cross-border sweep solution has improved the efficiency and effectiveness of cash management in China resulting in savings for the company.

Wei Ming Ho

Senior Treasury Manager, Asia Pacific

Problem…

Prior to September 2014, TE had relied on a manual process to move cash in and out of China to its entities abroad. Constrained by the previous government regulation, sweeping funds could take up to two months, leading to inefficient leverage of the cash available to the company.

“Moving cash in and out of China had always been a challenge for us, as it is for most corporations with operations in the country,” explains Wei Ming Ho, Senior Treasury Manager, Asia Pacific, at TE. “Applications to the regulator for cash transfers in and out of China would take a month or more, and then only after obtaining necessary approvals could we finally carry out a manual sweep.”

China is one of the company’s key markets in the Asia-Pacific region, so this inefficient leverage of cash in the country was a major concern. “We wanted a more efficient and effective way to optimise our cash in China and mobilize excess cash in China for global use, as the existing method was tedious and inefficient,” says Ho.

TE needed a mechanism that would automatically manage cash to create an acceptable balance that meets operational requirements both for TE’s mainland China entities as well as entities abroad and sweep excess cash into its existing RMB account in London, similar to what is currently possible in less-regulated jurisdictions such as Hong Kong and Singapore. New regulatory developments in China now allow for such a setup to be feasible. “With the changes in regulation in China, this is the ideal time to put in place an automated process that will address our cash management challenges and strengthen our ability to plan, manage, monitor and control our cash flows,” she adds.

…Solved

TE was able to improve the efficiency and effectiveness of its cash management by implementing Citi’s pioneering automated RMB cross-border sweep solution. In partnership with Citi, TE was able to link its domestic RMB pool in China into a special RMB account with Citi Shanghai, supported by the correct documentation. The Special RMB Account was then linked to an RMB account with Citi London operated by TE’s Treasury Centre, which is based in Switzerland.

The solution allows TE to easily identify and meet liquidity requirements domestically across a series of entities and accounts, before excess funds are swept automatically at true end of day from Citi Shanghai to Citi London. The reverse is also possible with the solution: RMB balances held with Citi London can be used to rectify negative positions incurred within the domestic pool operated by TE with Citi in China.

“This solution has alleviated the challenge of managing cash in China and consolidating our cash in-house,” says Ho. “We are also seeing significant savings in terms of labour process and time efficiency. The previous process took more than a month, but now cash is automatically swept the same day.” Furthermore, the solution was implemented two weeks ahead of schedule.

Citi’s solution is the first cross-border automatic lending structure from outside the Shanghai Free Trade Zone in China to London. The project connects TE’s Multi-Currency Notional Pool with Citi London and its balances in China. As part of Citi’s mandate, excess liquidity held with TE’s domestic cash pool in China (which is implemented with another global bank) is moved to Citi Shanghai accounts before being swept to Citi London.

Citi’s automated RMB cross-border sweep has satisfied TE’s needs. The efficiency of Citi’s cross-border sweeps allows TE to achieve greater flexibility to maximise net cash flows and move cash in a timely manner. The solution is also advantageous to TE as many of its counterparts already use Citi. Ho concludes, “With this cross-border solution now in place, we have laid the foundation to explore even more advanced solutions as regulation in China continues to become liberalised.”

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