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Liquidity Management

Provider of Renewable Packaging Solutions

First-in-market customised entrustment loan solution


About

This Shanghai-based company is a provider of renewable solutions in packaging, biomaterials, wood and paper. The company is involved in forestry, raw material sourcing, manufacturing and distribution of its products in China through multiple majority-owned joint ventures (JV) in Guangxi, Guangzhou, Jiangsu, Hebei, Shandong, and others.

 

The Challenge

The packaging provider offers working capital funds to its JVs through entrusted loans, a common funding method in China. However, as the number of JVs increased, so did the amount of loans the company was servicing, which raised overall debt levels and compromised the provider’s liquidity position. An overhaul of the company’s cash management structure was needed to provide more effective funding solutions to JVs, while keeping leverage ratios in check. Risk and control measures were also needed.

 

The J.P. Morgan Solution

  • A unique, first-in-the-market liquidity solution allowed the packaging provider’s entities to leverage excess balances within the group before activating the overdraft facility. By centralising residual balances at the concentration account, the company is also able to pool balances together to maximise yields on investments.
  • This innovative solution auto centralises or decentralises end-of-day balances based on group cash position.
  • Additional features of the solution include Sweep-as-required combined with an in-country Zero Balance Account, a single overdraft facility shared between the provider and JVs, and the capability to invest excess balances.
  • J.P. Morgan ACCESS® Host-to-HostSM solution was integrated with the provider’s SAP solution to automate payments, AR reconciliation and reporting.

 

 

Shanghai infographics

The Impact

  • The treasury team turned to J.P. Morgan to provide a solution that offered customised data mapping with host-to-host connectivity, which resulted in improved matching of accounts receivables (AR) and quicker release of customer credit.
  • By streamlining the packaging provider’s account structure, treasury was able to take advantage of an optimal and efficient single overdraft facility.
  • J.P. Morgan provided the flexibility the company needed to manage complex entrustment loan relationships amongst the company’s joint ventures and minority shareholders in China.
  • This solution provided treasury access to real-time liquidity positions through automatic reconciliation of payments and balances.

 

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