Chinese CIMC pioneer in highly innovative cash pooling
This is the third of three articles published by ING in Treasury Management International (TMI) providing in-depth insights into the challenges, opportunities and solutions for corporations expanding from their home market in Europe or Asia into new territories.
An ING / Bank Mendes Gans case study by Raymond Zhang, assistant general manager, Treasury division, China International Marine Containers (Group) Ltd.
China International Marine Containers (Group) Ltd (CIMC) has experienced considerable overseas business expansion in recent years, with 65% of revenues now generated from outside China. In 2013, the company was one of the first Chinese corporations to implement a multicurrency, multi-entity, notional cash pool with Bank Mendes Gans (BMG) offering considerable value in cash visibility, liquidity and FX risk management. In this article, Raymond Zhang, head of group financing at CIMC, outlines the background to this decision and some of their experiences sofar, with comment from Norbert Braspenning, managing director Asia Pacific, Bank Mendes Gans, a subsidiary of ING.
CIMC covers a wide spectrum of activities from containers and vehicles through to energy, chemical and food equipment, offshore oil and gas and airport facilities. Over the past five years, we have structured our business into eight business segments, the cash and treasury management activities of which are managed through our treasury holding company. This comprises two divisions: cash management(which takes care of cash management, financing and bank relationships) and our financial service operation that is involved with group financing and leasing. CIMC has been the world’s no. 1 container business since 1996, and this remains a core activity for the business. However, other parts of the business, such as specialist vehicles, are also growing considerably, both in China and overseas, such as in Europe. The business is also actively engaged in mergers and acquisitions (M&A). For example, CIMC is the no. 3 company globally in offshore (oil and gas) equipment manufacturing having acquired a Norwegian business in 2008. As a result of both organic growth and M&A, CIMC has become a global business, with 65% of our income now derived from international activities, with significant balances in EUR, USD and other currencies.
Responding to change
Given the growth of the organisation, and exposure to an expanding range of foreign currencies, we needed to create a new model for handling foreign currency balances across markets and manage our FX risk more effectively. Although we had had a cash pool in place for the previous two years, we needed a more effective way of managing our currency risk as well as cash. We therefore decided to implement two cash pools: a domestic cash pool in China, and an international cash pool, which is operated by Bank Mendes Gans (BMG), owned by ING.
A pioneering relationship with BMG
There were a variety of reasons for selecting BMG to manage the international cash pool. We reviewed various options, and recognised that BMG’s multi-currency, notional cash pooling solution offered unique advantages in both currency and liquidity management, without impacting on our existing account structure. CIMC was a pioneer amongst Chinese corporations as one of the first to adopt BMG’s solution. Although BMG is well known internationally, particularly amongst multinational corporations headquartered in North America or Europe, the bank is currently less familiar to Asian, and particularly Chinese companies. However, we recognised that ING, with its subsidiary BMG offered the combination of innovative solutions, experience and expertise, commitment to our business and international reach that we required. The international cash pool is highly innovative in nature, and is structured as a multi-currency, multi-entity, cross-border notional cash pool. This means that we can link accounts globally into the cash pool and offset surplus cash balances to offset deficits, and net off foreign currency exposures. As physical balances remain in country, however, we do not incur withholding tax issues.
Implementation and outcomes
Since we started to implement the cash pool in 2013, we have taken a step-by-step approach. So far, we have connected around twenty of our Asian and North American entities, and expect to add entities in Australia, South America and Europe in due course. One of the most significant benefits of BMG’s cash pooling solutions is the ability to gain far better visibility over cash flows and positions across the business, so we are looking at how best we can leverage this opportunity to inform our cash and liquidity strategy and decision-making. Although we have not yet implemented the cash pool across all of the regions in which we operate, we are already realising the benefits. In particular, we have achieved visibility over flows and balances across We are able to achieve our intercompany funding and FX risk management requirements whilst reducing our withholding tax liability, leading to a highly efficient solution that meets our current and future objectives.
Factors in success
There are a number of factors that have contributed to the project so far, and continue to do so as we expand the project scope further. While both CIMC and BMG bring different skills and experiences, we have worked closely together throughout the process, with common objectives. Both organisations have taken a flexible, pragmatic approach to implementation, and shared experiences and mutual respect.
“Chinese companies are often seeking to learn from, and emulate, solutions that have been implemented successfully by their peers, both Chinese and foreign businesses. In the past, BMG has been less well known in Asia than in other regions but the value proposition of its multi-currency, multi-entity notional cash pooling solutions is compelling irrespective of where the corporation is headquartered. As the relationship with CIMC illustrates, BMG takes a long-term approach to relationship-building with companies in China, leveraging our extensive international experience to create solutions that meet their business, cultural, tax, legal and accounting requirements. In addition, we recognise that every company is different, and has specific strategic and operational needs in addition to the need to tailor solutions to meet market and regulatory requirements. We recognise that it can take a leap of confidence to work with an unfamiliar bank, but the benefits to doing so, including cash visibility, lower funding costs through the use of surplus funds for intercompany financing and reduced FX risk can be considerable. Furthermore, companies gain access to expertise on international best practices in cash and treasury management which is essential in increasing stakeholder confidence and maintaining competitiveness.” - Norbert Braspenning, managing director Asia Pacific, Bank Mendes Gans (ING)
Looking ahead, we look forward to expanding the reach of our multi-currency, multi-entity notional cash pool further, particularly into Europe where we have substantial activities, in order to leverage the benefits at a global level. In addition we are looking to integrate our group financing more closely into the cash pool, such as linking to our credit facilities.
Chinese multinational corporations that have grown their international business rapidly have less experience of global liquidity and FX risk management than their North American and European peers that have often grown over a longer period. Consequently, it is important to explore the opportunities to optimise liquidity and risk management with a partner bank that has the global solutions and specific expertise to support the business effectively. This may involve looking beyond traditional, familiar bank relationships to forge new relationships with banks such as BMG that are not headquartered in China, but understand in detail the issues of global liquidity and risk management. Finally, it is important to be patient. New solutions, particularly those that are less familiar and/ or that have multiple stakeholders located in different parts of the world, take time to implement, so it is important to take a step-by-step approach and manage expectations accordingly. CIMC is proud to be an early adopter in China of BMG’s proven, wellestablished cash pooling solution and we look forward to extending the benefits further as we expand the geographic reach and depth of the solution in the future.
Raymond Zhang, assistant general manager, Treasury division, China International Marine Containers (Group) Ltd.
Raymond Zhang is responsible for liquidity allocation and establishing and operating the international financing platform of the whole group. Raymond graduated from Wuhan University majoring in International Finance. He received his Masters degree from the University of Surrey in the UK, majoring in Finance. Having worked at the Industrial and Commercial Bank of China and the London Insurance Company’s Fund Company in Canada, Raymond has over 15 years of management experience in financial institutions and large scale multinational corporates.
Norbert Braspenning, managing director Asia Pacific, Bank Mendes Gans (ING)
Norbert Braspenning is responsible for establishing and building market share for Bank Mendes Gans throughout Asia. As a vital resource to his prospective clients, he provides a vast knowledge of accounting, system, operational, legal and tax issues related to liquidity management solutions. Braspenning is a lead liquidity management solution expert, with over 18 years of global liquidity management project experience and with proven abilities to succeed collaboratively within a multi-cultural, complex organisational environment.
China International Marine Containers (Group) Ltd
Founded in 1980 in Shenzhen, PRC, and listed on the Shenzhen and Hong Kong Stock Exchanges, China International Marine Containers (Group) Ltd (CIMC) is committed to partnering its customers in meeting their transport needs through the manufacture and supply of containers, trailers, tank equipment and airport facilities. In 2013, CIMC generated RMB 57.87bn annual sales and RMB 2.18bn net profits with over 432 subsidiaries and 63,000 staff across China, North America, Europe, Asia and Australia.