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Liquidity Management

FMC Mobilizes Trapped Cash to Reap Cost Savings

In the first nine months since deploying a single-entity, multi-currency notional pool, FMC successfully mobilized over $100 million in liquidity, including unlocking trapped cash in its China operations. The solution is also expected to deliver $500,000 in cost savings annually in the form of reduced intercompany funding and FX costs.


About

Headquartered in Philadelphia, USA, FMC Corporation (FMC) is a leading agricultural sciences company that advances farming through innovative and sustainable crop protection technologies. The firm generated revenues of $4.7 billion in 2018 and employs approximately 6,500 employees globally. Its Asia Pacific operations span across 13 markets and contributes to 25 percent of its global revenues.

 

The Challenge

Prior to November 2018, FMC operated a highly decentralized treasury structure in Asia Pacific with each of its 13 markets managing its own cash balances through multiple local banks. This resulted in:

  • High levels of idle cash that generated low yields on local currency balances
  • Lack of visibility into the region’s overall cash levels as balances across multiple local banks had to be manually collated
  • High funding and FX conversion costs as the firm needed to make frequent internal fund transfers between markets to support local working capital needs

The company’s volume of idle cash was highest in China where it held long positions in Chinese yuan (CNY). However, utilizing the excess liquidity in China to fund other markets proved challenging due to the country’s foreign exchange controls on cross-border fund movement.

FMC sought a flexible regional liquidity solution that would allow the firm to efficiently manage surplus balances across its key Asia Pacific markets, especially China, and minimize FX and funding costs. Since it already had an existing structure in China with its incumbent bank that linked all its Chinese entities to a domestic header account, FMC desired a regional liquidity solution that does not disrupt its existing banking setup in China.

 

The J.P. Morgan Solution

With J.P. Morgan’s help, FMC implemented a single-entity, multi-currency notional pool (SEMCNP) in Singapore to centralize its liquidity across key markets including Australia, China, Hong Kong SAR, Japan, Singapore and New Zealand, and notionally offsetting short positions in one market with long positions in another without the physical conversion of currencies. This allows excess balances across the region to be automatically pooled and made available for entities to self-fund one another in the form of working capital or invested to maximize yields. Any further surplus can also be used to fund working capital shortfalls or pay off short-term debts for their operations in EMEA and the Americas as required.

Integrating FMC's China account into the notional pool was critical and the firm, together with J.P. Morgan, held extensive discussions over two months with China's central bank and was eventually granted exceptional approval to set up a special structure connected to FMC's offshore entities in Singapore and Hong Kong SAR. Twice a day, the unique structure automatically sweeps surplus CNY funds from the China entity into the offshore accounts which is then moved into the SEMCNP. Balances from its other domestic cash pool (with its incumbent bank) are also funded to FMC’s China account under J.P. Morgan and further swept to the SEMCNP.

In the first nine months since the SEMCNP went live, FMC successfully mobilized over $100 million in liquidity, including unlocking trapped cash in its China operations. The solution is also expected to deliver $500,000 in cost savings annually in the form of reduced intercompany funding and FX costs.

 

The Result

The flexible liquidity solution has enhanced FMC’s liquidity optimization to drive new efficiencies including:

  • Over $500,000 in estimated cost savings annually via self-funding of working capital via the SEMCNP structure
  • Increased mobilization of trapped cash out of heavily restricted markets such as China via cross-border sweeps into the regional notional pool
  • Improved yields on overall regional cash balances via enriched investment options
  • Rationalized the number of banking providers by closing out local bank accounts and utilizing the in-country accounts under the notional pool for operational purposes
  • Decreased working capital costs by utilizing surplus cash in the regional cash pool to fund local market needs
  • Reduced FX costs as all positions within the liquidity structure are notionally offset without actual FX conversions
  • Improved visibility with the ability to track cash balances and intercompany positions in real-time
J.P. Morgan’s tailored solution has significantly enhanced our liquidity and working capital management in the region; enabling us to mobilize trapped cash out of China to fund other markets while fully complying with local regulations.

Oliver Li, Asia Treasury Manager FMC Corporation

FMC Corporation is an overall winner of the Treasury Today 2019 Adam Smith Awards Asia in the category of Best in Class Treasury Solution in China.

 



To learn more, please contact your J.P. Morgan representative.



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