THECORPORATETREASURER.COM 10 CORPORATE TREASURER APRIL / MAY 2016 Unleashing cash liquidity in China Huang Bilie, CFO of China’s largest logistics company, Sinotrans & CSC, shares how centralised treasury eased its funding pressures and reduced borrowing costs by 30% By Ann Shi T o corporate treasurers in Asia’s shipping industry, Sinotrans & CSC doesn’t need any introduction. To those who aren’t familiar, it is the biggest comprehensive logistics service supplier in China by total assets and is the result of a merger between China National Foreign Trade Transportation Corporation (Sinotrans) and China Changjiang National Shipping Corporation (CSC) in 2009. As of 2013, the group claimed more than 730 domestic companies in China, as well as maintaining a presence in more than 50 overseas markets including Hong Kong, South Korea, Japan, Canada, the US, and Germany. Additionally, the logistics company has established agency relationships with over 400 overseas transportation and logistics service suppliers. At the end of 2014, Sinotrans & CSC recorded a total profit of Rmb2.8 billion ($430 million) and a total asset value of Rmb109.1 billion. The vast array of its operations makes overall visibility of cash positions across all entities in the group a headache for Huang Bilie, chief financial officer of Sinotrans & CSC. In his words: “[the company’s] treasury was…too decentralised, causing inefficient cash management [at a group level] and leaving the operations at risk due to unclear view of cash flows.” A lack of cash visibility at a group level meant that the group was always chasing external financing. After the merger in 2009 – a time when China was encouraging capital expenditure as part of its economic stimulus measures – Sinotrans & CSC was under pressure to “After the renminbi devaluation last August, Sinotrans & CSC made use of the low interest rate of euro borrowing” expand its operations globally. Knowing there was “idle cash” sitting somewhere in the group, Huang decided to centralise the company’s finance and treasury in an effort to push liquidity across the group and reduce dependence on bank loans. The broad goal was eventually achieved last year via several phases, including setting up a regional treasury centre (RTC) in Hong Kong in 2010, an in-house bank (IHB) in its Beijing headquarters in 2011, and establishing cross-border cash structures in 2014 and 2015 to link up onshore and offshore funds. As of December 31, 2015, Sinotrans & CSC has provided in aggregate more than Rmb10 billion ($1.53 billion) of inter- company loans to its subsidiaries and affiliates via its IHB, according to Huang. He also estimates that the company is now able to reduce its idle cash over the course of a year by up to 40%. Compared to bank loans, inter- company loans is much cheaper, as China allows a 10% to 30% discount from the central bank’s prime rate for inter-company lending. Given the distress in the shipping industry, this source of funding has become hugely beneficial. SET UP THE STRUCTURE In 2010, Sinotrans & CSC established an RTC in Hong Kong to centralise the company’s overseas cash management, as well as the operations and implementation of overseas financing and investment for the group. In June, 2011, Sinotrans & CSC obtained a non-banking financial institution licence from the China Banking Regulatory Commission to operate an IHB in China. With the licence, the company established Sinotrans & CSC Finance Co., Ltd (SFC), optimising the allocation of capital and providing financial services for group companies. “Treasury responsibilities were effectively moved to SFC,” said Huang. Today, the group’s treasury and finance team consists of 30 people at the SFC, four people in its finance department in Beijing and two in the Hong Kong RTC. Once the two Huang Bille, Sinotrans & CSC Sinotrans.indd 10 4/15/16 4:56 PM
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THECORPORATETREASURER.COM10 CORPORATE TREASURER APRIL / MAY 2016
Unleashing cash liquidity in ChinaHuang Bilie, CFO of China’s largest logistics company, Sinotrans & CSC, shares how centralised treasury eased its funding pressures and reduced borrowing costs by 30% By Ann Shi
T o corporate treasurers in Asia’s shipping industry, Sinotrans & CSC doesn’t need any introduction. To those who aren’t familiar, it
is the biggest comprehensive logistics service supplier in China by total assets and is the result of a merger between China National Foreign Trade Transportation Corporation (Sinotrans) and China Changjiang National Shipping Corporation (CSC) in 2009.
As of 2013, the group claimed more than 730 domestic companies in China, as well as maintaining a presence in more than 50 overseas markets including Hong Kong, South Korea, Japan, Canada, the US, and Germany. Additionally, the logistics company has established agency relationships with over 400 overseas transportation and logistics service suppliers.
At the end of 2014, Sinotrans & CSC recorded a total profit of Rmb2.8 billion ($430 million) and a total asset value of Rmb109.1 billion.
The vast array of its operations makes overall visibility of cash positions across all entities in the group a headache for Huang Bilie, chief financial officer of Sinotrans & CSC. In his words: “[the company’s] treasury was…too decentralised, causing inefficient cash management [at a group level] and leaving the operations at risk due to unclear view of cash flows.”
A lack of cash visibility at a group level meant that the group was always chasing external financing. After the merger in 2009 – a time when China was encouraging capital expenditure as part of its economic stimulus measures – Sinotrans & CSC was under pressure to
“After the renminbi devaluation last August, Sinotrans & CSC made use of the low interest rate of euro borrowing”
expand its operations globally.Knowing there was “idle cash” sitting
somewhere in the group, Huang decided to centralise the company’s finance and treasury in an effort to push liquidity across the group and reduce dependence on bank loans.
The broad goal was eventually achieved last year via several phases, including setting up a regional treasury centre (RTC) in Hong Kong in 2010, an in-house bank (IHB) in its Beijing headquarters in 2011, and establishing cross-border cash structures in 2014 and 2015 to link up onshore and offshore funds.
As of December 31, 2015, Sinotrans & CSC has provided in aggregate more than Rmb10 billion ($1.53 billion) of inter-company loans to its subsidiaries and affiliates via its IHB, according to Huang.He also estimates that the company is now able to reduce its idle cash over the course of a year by up to 40%.
Compared to bank loans, inter-company loans is much cheaper, as China allows a 10% to 30% discount from the central bank’s prime rate for inter-company lending. Given the distress in the shipping industry, this source of funding has become hugely beneficial.
SET UP THE STRUCTUREIn 2010, Sinotrans & CSC established an RTC in Hong Kong to centralise the company’s overseas cash management, as well as the operations and implementation of overseas financing and investment for the group.
In June, 2011, Sinotrans &
CSC obtained a non-banking financial institution licence from the China Banking Regulatory Commission to operate an IHB in China. With the licence, the company established Sinotrans & CSC Finance Co., Ltd (SFC),
optimising the allocation of capital and providing financial services for group companies. “Treasury responsibilities were effectively moved to SFC,” said Huang.
Today, the group’s treasury and finance team consists of 30 people at the SFC, four people in its finance
department in Beijing and two in the Hong Kong RTC.
Once the two Huang Bille, Sinotrans & CSC
Sinotrans.indd 10 4/15/16 4:56 PM
THECORPORATETREASURER.COM APRIL / MAY 2016 CORPORATE TREASURER 11
CHINA LIQUIDITY MANAGEMENT
across borders for domestic operations;
● Redeem US dollar debts, with some redeemed earlier than maturity.
Huang said he had now “minimised” the impact of such surprises.
THE NEXT STEPIn late 2014, SFC became a corporate member of the Swift network to help the group achieve greater cash control by improving information fl ows and simplifying integration among systems.
According to Huang, the next step in improving its treasury management operations is to clear misconnection (or disconnection) among systems and achieve global cash visualisation. This will be more signifi cant as the company merges with Hong Kong-based China Merchants Group, another state-owned conglomerate. It looks like Huang could have another interesting treasury project on his hands.
GLOBAL CASH MANAGEMENT POST TREASURY REORGANISATIONhubs were operating, the company then focused on implementing treasury infrastructure in the whole group via the RTC and IHB.
For example, Sinotrans & CSC kicked off electronic payment integration with each of its banks to ensure visibility and control over its cash positions in its bank accounts. More than 170 overseas bank accounts are managed in this way by the RTC, said Huang, adding that private banking and investment banking relationships were also centralised within the RTC to better manage the group’s overseas investment transactions. More than 1,600 domestic bank accounts are managed via the IHB.
Additionally, the company established physical cash pools to automatically sweep surplus funds with specifi ed limits to header accounts in the Hong Kong RTC and SFC IHB, from overseas accounts and domestic accounts, respectively.
PAYMENT CENTRALISATIONTo make cash management more effi cient, Sinotrans & CSC also moved to centralise payments on behalf of group companies. In 2012 SFC started to utilise a TMS (treasury management system) to directly connect to banks. In doing this, the SFC acts as a payment factory.
Intra-group payments for goods and services are processed electronically and settled on internal current accounts, while the group “encourages” the processing of all third party payments and receivables centrally via the SFC. According to Huang, the centralised payment rate is now more than 90%.
GLOBAL CASH MANAGEMENTTo integrate domestic cash management with overseas fund management, the company needed to build a cross-border link.
In the second half of 2014, Sinotrans & CSC obtained the “centralised operation and management of foreign exchange (FX) funds for multinational corporations” licence from the State Administration of Foreign Exchange. The company can now centralise the transfer of FX funds among domestic and overseas entities.
In early 2015, the company received the nod from the People’s Bank of China to run a cross-border renminbi pilot programme.
Via the two cross-border structures automatically linking its IHB and offshore RTC, Sinotrans & CSC now has “suffi cient” quota for inward and outward fund fl ows in FX and renminbi on a daily basis, according to Huang.
With this structure in place, Sinotrans & CSC built a global cash management system, which enables Huang to manage the company’s global fund fl ows and arbitrage the differences in onshore/offshore interest rates and FX rates to mitigate risk and fi nancial impacts.
For example, after the renminbi devaluation last August, the company moved to:
● Borrow in euros offshore, making use of the low interest rate of euro borrowing;
● Convert US dollars to renminbi using the offshore favourable rate [for the US dollar], and sweep the renminbi proceeds
BEIJING (IHB)► Manages 1,600+ domestic bank accounts► Centralises the fund management of 730+ domestic companies► Releases 30%-40% liquidity at the group level
► Provides loans to group companies at up to 30% discount to PBoC’s prime rate► Has lent more than Rmb10 billion to group companies as of December, 2015
HONG KONG (RTC)► Manages 170+ overseas bank accounts► Centralises the fund management for 50+ overseas markets
► Manages FX funds for the group► Executes overseas fi nancing and investment transactions
