Case Study: Automobile

SAIC Motor Corporation Limited (SAIC Motor) is a Chinese state-owned company and a comprehensive provider of auto products and mobility services headquartered in Shanghai, with manufacturing bases, research and innovation centres as well as sales and marketing offices set up around the world.

As SAIC Motor expands into more regions, it has become more challenging for the group to meet the key objectives of managing global liquidity and working capital funding. The group’s liquidity structure might have become highly decentralised with new banking accounts added over the years by overseas subsidiaries and the expansion of relationships with local banking partners. This exposed SAIC Motor to various risks, including lack of visibility into overall cash movements and the high costs in managing disparate bank accounts across markets.

In August 2020, SAIC HK International Finance Limited (SAIC HKIF) was set up in Hong Kong to manage SAIC Motor’s overseas treasury responsibilities (“CTC”). It holds both Hong Kong local and connected cross-border cash pooling structures. Its key objectives include:

• managing FX exposures centrally in better achieving currency matching and optimisation of overall cash flows and positions under SAIC Motor;
• advising, proposing, and recommending solutions on foreign exchange and interest rate risk management for offshore subsidiaries; and
• supporting SAIC Motor’s trade activities in automobile exports. Starting from 2021, SAIC HKIF has been providing trade financing and payment/collection services for the group’s import and export business as a key pillar for SAIC’s internationalisation. It also provides financing and facilitates funding requirements for member companies at competitive rates.

In this journey, SAIC HKIF worked with a global banking partner as its new overseas core cash management bank and implemented a liquidity structure to centralise SAIC Motor’s funds from regional and global perspectives. It accomplished so by:

• implementing a physical cash concentration structure in the U.S. that connects SAIC Motor’s U.S., Hong Kong and Canadian entities’ accounts in the North America region;
• connecting U.S. header account to SAIC HKIF’s cross-border cash pool in Hong Kong; using an “against-the-sun” model to facilitate cross-border sweeping and consolidate surplus funds from the U.S. to Hong Kong without any loss of value in liquidity, as cash coming into Hong Kong after cut-off hours are back-valued; and
• with surplus cash pooled in Hong Kong, automatically sweeping funds to meet working capital needs across markets, as and when required.

By consolidating surplus cash across its overseas markets in a CTC, SAIC HKIF is able to centrally control and manage the firm’s liquidity and working capital in a single location, which drives greater cash efficiencies internally in meeting working capital requirements in growth markets and regions.

For SAIC Motor, Hong Kong is an attractive hub for centralising its group financial management activities as it provides efficient regulatory framework, wide network of finance and treasury resources to specialise in its function, broad set of banking capabilities to enable its transformation – all with minimal constraints for corporates to handle their offshore treasury activities.

As SAIC Motor is headquartered in Mainland China, proximity to the Mainland and depth of RMB currency-related solutions are also important considerations.

By centralising offshore treasury activities in Hong Kong, SAIC Motor is able to embed greater control, strengthen its treasury governance, and achieve significant operating efficiencies.

Zooming into the liquidity solution, this has transformed SAIC Motor’s approach to overall liquidity management, enabling it to:

• rationalise 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;
• optimise the use of funds by utilising excess cash in the U.S. to fund other growth markets as working capital;
• enhance visibility and control of global liquidity through a centralised liquidity approach; and
• improve yields, as surplus funds are aggregated to maximise returns.