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Liquidity Management

Samsonite China alleviates liquidity crunch during pandemic with cross-border sweeps solution

Collaboration with central bank key to swift deployment of 1+2 renminbi sweeps structure


About


U.S.-based and Hong Kong-listed Samsonite is one of the world’s largest makers of travel goods and retailer, with products ranging from large suitcases to small toiletries bags. China is a key market for the firm, accounting for around eight percent of its global sales of $3.64 billion in 2019.
 

The challenge


With the travel industry hard hit by the COVID-19 crisis, Samsonite, as a key manufacturer of travel goods, was not immune. Samsonite’s sales in China fell sharply as the pandemic swept across the country; while it had RMB 150 million in its cash coffers in January 2020, by April, it was servicing RMB 100 million in bank loans for urgent working capital needs like paying overhead expenses to keep businesses operational.

While the cheapest means of funding would be through freeing up internal cash, moving funds in and out of China vis a vis its overseas entities was a very manual and time-consuming process, involving a lot of paper documents and the need for regulatory approvals on a case by case basis. Tapping on bank loans remained an expensive alternative.

Samsonite China needed a treasury solution to mobilize funds in and out of China as necessary, and one that can be implemented quickly due to its urgent liquidity needs.
 

The solution


In collaboration with J.P. Morgan, Samsonite China implemented a 1+2 RMB two-way cross-border sweeping structure, with one Chinese entity and two overseas entities that are in Singapore and Australia – the first time such a cross-border structure has been set up for a company with just one Chinese entity that is based outside of the Shanghai Free Trade zone; Samsonite China’s entity is registered in Ningbo in Zhejiang province.

This was possible because of J.P. Morgan and Samsonite’s close collaboration with the China central bank under the Nationwide Cross-border RMB two-way sweeping regulatory scheme. The People’s Bank of China gave the approvals within a week of the submission of documents; implementation was also extremely prompt, with the structure ready within a month of regulatory approval and client’s readiness in documentation.

With the solution, Samsonite China now has the revolving ability to sweep a maximum of RMB 150 million in cash surplus to its entities in Singapore or Australia, or borrow a maximum of RMB 150 million from the entities. This is a fully automated solution where Samsonite had the ability to change the sweeping sequence and trigger timings as it sees fit. Any surplus cash in China can also be ultimately swept to Samsonite’s offshore entities indirectly, via a regional sweeping structure from Singapore / Australia through to Hong Kong, and from Hong Kong to offshore via a global sweeping structure.

“The solution not only helped us mobilize liquidity into China during the pandemic, but also provides a back-up channel to draw down working capital and finesse the movement of funds within the Samsonite Group.” 

Jerry Chen, China CFO, Samsonite

The results


  • Effectively alleviated the liquidity crunch Samsonite faced when sales in China slumped during the COVID-19 crisis. 
  • Reduce idle cash in China where it can now mobilize surplus balances offshore to support regional and/or global initiatives. 
  • Optimize working capital by sweeping large balances from China to offshore entities and vice versa, to fulfil funding needs within the Group. 
  • Improve operational efficiency by saving up to 160 man-hours a year through the fully automated solution.
“Beyond meeting Samsonite China’s liquidity challenges during the crisis, the cross-border sweeping structure is expected to generate further benefits to Samsonite by mobilizing idle cash in China’s restricted market to other overseas entities, optimizing working capital globally.” 

Ling Ding, China Relationship Banker, J.P. Morgan

 Samsonite China is a highly commended winner in the Best Crisis Management Solution category at the Treasury Today 2020 Adam Smith Awards Asia – widely known as the industry benchmark for treasury excellence. 
 


To learn more about how we can support your business, please contact your J.P. Morgan representative.

  


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