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SAIC Centralizes Cash To Drive Overseas Expansion

Against-the-Sun model mitigates loss of value in cross-border funds


About
 

SAIC Motor Corporation Limited (SAIC Motor) is a Chinese state-owned company and the largest automaker in China, dominating a quarter of market share and with a market capitalization of CNY 290 billion as of August 2019. Based in Shanghai, the automaker has business operations across the globe, with manufacturing bases in Thailand, Indonesia and India and research and innovation centres in the U.S., UK and Israel as well as 13 sales and marketing offices across the Middle East, South America, Australia and Europe.

Established in 2009, SAIC Motor HK Investment Limited (SAIC HK) serves as SAIC Motor’s overseas investment and financing platform and has recently also undertaken the role of its offshore centralized treasury centre (CTC) to manage the firm’s cash and liquidity in overseas markets.

The Challenge
 

As SAIC Motor expanded into new regions, managing its liquidity and working capital funding across the different markets became increasingly challenging.

Its liquidity structure had become highly decentralized as a result of subsidiaries in overseas markets adding new banking accounts over the years as they expanded relationships with local banking partners. The structure exposed SAIC Motor to various risks, including a lack of visibility into overall cash movements and the high costs associated with managing disparate bank accounts across markets.

Limited control over surplus cash in offshore accounts also created challenges for the firm to effectively deploy cash and optimize yields. Without a centralized structure to connect global accounts, surplus funds were often trapped in the cash-rich, mature markets of North America that could otherwise be deployed to fund growth markets especially across the belt and road network.

To support the firm’s internationalization agenda, SAIC HK – as SAIC Motor’s offshore CTC – sought a solution that would allow it to:

  • Improve visibility and strengthen the CTC’s controls over offshore cash
  • Optimize its cash by utilizing surplus positions in cash-rich markets to fund working capital requirements in growing regions such as India and ASEAN 

The J.P. Morgan Solution
 

SAIC HK mandated J.P. Morgan as its new overseas core cash management bank and implemented a liquidity structure to centralize SAIC Motor’s funds from a regional and global perspective.

J.P. Morgan implemented a physical cash concentration structure in the U.S. that connects SAIC Motor’s U.S., Hong Kong and Canadian entities. The structure enables participating entities to sweep any surplus funds into the U.S. header account while maintaining a minimum level of cash at each operating entity for working capital needs. The U.S. header account is further integrated into the CTC’s cross-border cash pool in Hong Kong. Using an Against-the-Sun model, the structure facilitates the cross-border sweeping of consolidated surplus funds from the U.S. to Hong Kong without any loss of value in liquidity, even for cash coming into Hong Kong after cut-off hours (which get back-valued).

With surplus cash pooled in Hong Kong, SAIC HK can now automatically sweep funds to meet working capital needs across markets as and when required. In Indonesia, India and Thailand where there are strict currency restrictions, SAIC HK set up a shareholders’ loan arrangement to manually sweep funds from the cash pool, to meet working capital needs in these growing markets.

Additionally, SAIC HK also leveraged J.P. Morgan Access® to access real-time balance reporting, track intercompany loans across multibank sweeps and manage interest pay-outs to participating entities – enabling the CTC to gain full visibility and control of its global liquidity. 

The Result
 

The solution transformed SAIC Motor’s approach to liquidity management, enabling it to:

  • Rationalize its liquidity structure by consolidating multiple banking relationships across regions
  • Leverage an Against-the-Sun mechanism that enables cash received after cut-off times to be back-dated to ensure no loss in value of funds
  • Optimize use of funds by utilizing excess cash in the U.S. to fund other growth markets as working capital
  • Enhance visibility and control of global liquidity through a centralized liquidity approach
  • Improve yields, as surplus funds are aggregated to maximize returns

“J.P. Morgan has been instrumental in helping us centralize control and gain full visibility into our global liquidity; allowing us to optimize cash to meet working capital needs in our growth markets.”

 

Tao Zheng
Assistant General Manager, Director of Overseas Treasury Management
SAIC Motor HK Investment Ltd

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SAIC Motor HK Investment Limited is a highly commended winner of the Treasury Today 2019 Adam Smith Awards Asia in the category of Best Risk Management Solution.

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