Case study: creating a cash pooling solution for cash management efficiency

Background

Beijing-headquartered CRRC is the world's largest supplier of rail transit equipment, with the most comprehensive product lines and leading technologies. The group has hundreds of subsidiaries in over 100 countries and regions worldwide.

CRRC was looking to mitigate the issues it has faced in its journey of global expansion. To ensure the safety of its funds and support its business expansion, CRRC aims to set up a global treasury function through its financial wing, CRRC Hongkong Capital Management Co., Limited (CRRC-HKCM), for all subsidiaries worldwide. With BOCHK’s solution, CRRC-HKCM has successfully set up a global treasury centre in Hong Kong to achieve visibility, control and funds concentration for its overseas subsidiaries.

This involved a three-layered cash pool for cash concentration and a single platform gathering global account information. Within the cash pool, unique functionalities were set up to enhance flexibility for CRRC-HKCM.

Enhanced cash pooling model – three-layered structure with flexibility

CRRC-HKCM had previously concentrated its funds directly into its Hong Kong header account, but this caused co-mingling of funds and created a lack of clarity over transaction paths. To prevent such complexity, BOCHK provided a three-layered cash pooling structure for fund concentration from CRRC’s overseas subsidiaries. Cash pool functions such as transaction-based downward sweep and flexible sweeping options are also important elements of the solution.

The base layer consists of overseas operating accounts located in the UK, US and Australia with a minimum balance sweep set up respectively. Funds from CRRC’s overseas subsidiaries are concentrated into their own regional centres, then being swept to their respective accounts in Hong Kong. These accounts, together with accounts of Hong Kong subsidiaries, are participants of the Hong Kong local cash pool, in which funds are concentrated into the ultimate header account automatically with daily zero balance sweep.

With the three-layered cash pool structure in place, CRRC-HKCM is able to concentrate funds directly into the Hong Kong header account without co-mingling of funds and with clear transaction paths. This is aligned with the regional management structure of CRRC-HKCM.

A transaction-based downward sweep was set up in the cash pool to strike a balance between daily concentration of idle funds in the header account and allowing local payments to be made by pool participants. The function is set up for the pool participants in Hong Kong such that when payment is initiated for any pool participant, funds will be pulled from the header account to complete the payment.

It has overcome the difficulties in unlocking the concentrated funds in the header account to fulfill payment obligations of subsidiaries.

In addition, a mix of automated and manual sweeping functions were implemented in the cash pool. This enables CRRC-HKCM to fulfill different funding requirements and fund usage patterns for different layers and different pool participants. CRRC-HKCM can now accommodate local requirements and select the sweeping method that suits it best.

Consolidated visibility and control on a single platform

Another challenge for CRRC-HKCM came from the risks of errors and time lags in obtaining account information manually, which in turn reduced efficiency in the firm’s treasury forecasting and overseas investments. To turn the situation around, BOCHK provided a single online platform to gather CRRC’s global account information.

CRRC-HKCM can now access the group’s global accounts on its global online banking platform for the Hong Kong treasury centre to centralise enquiries and payments.

In the first phase of implementation, more than 200 accounts from over 20 countries are now included on the platform – via cross-border e-banking channels and MT940 cable reports.

With account information on one platform, treasury management functions are centralised in the global treasury centre, including treasury resources, processes, controls and technology. This creates economies of scale and streamlines processes and connectivity with banks.

Making a difference

BOCHK created a unique solution to resolve CRRC-HKCM’s challenges. Through opening accounts for overseas companies in Hong Kong and implementing the three-layered cash pool structure with various functions, CRRC-HKCM has achieved its cash concentration goals with flexibility. By setting up a global online banking platform, CRRC-HKCM has strengthened its control over how funds are used through centralised payments and reports enquiry.

The overall solution enabled CRRC-HKCM to cater to the needs of both the global treasury centre and local companies, while achieving a new level of visibility and control within the group.