Case Studies: Energy

China General Nuclear Power Corporation (CGN Group) is a large-scale clean energy group established in 1994, with over 800 member companies located across China and overseas regions, and its “going-out” business spanning across Asia, Africa, Europe, and America.

As CGN Group continued to expand across different markets, it sought to streamline member companies’ treasury activities and safeguard its offshore liquidity by centralising cash management within the group. The group saw the need to establish a treasury management structure that would create collective value for the group and member companies through providing higher interest on deposits, lower cost on lending, and nil settlement cost comparing to banks.

Established in 2010 in Hong Kong, CGN Huasheng Investment Limited (CGN Huasheng) is CGN Group’s sole offshore cash management centre (“CTC”). It is responsible for centrally managing the group’s offshore liquidity and treasury activities including payment and settlement, foreign exchange, cross-border and offshore lending, financing, investments, and hedging.

To serve CGN Group’s need to manage offshore funds and CGN Huasheng’s daily business need, CGN Huasheng built a four-layer cash pool structure with a key header account, connected internally with the group’s onshore headquarters and externally with overseas subsidiaries. Through Hong Kong-based sub-accounts created for offshore subsidiaries with the partnering bank, the CTC centrally handles all transactions with external parties. The subsidiaries are also paired with local accounts with the partnering bank to fulfil their daily operational needs.

Within the Hong Kong cash pool, end-of-day balances in offshore subsidiaries’ sub-accounts are automatically concentrated to CGN Huasheng’s header account. When subsidiaries need to pay external parties, they submit requests to the CTC via the internal banking platform. Upon approval, funds will be transferred to the sub-accounts to complete the payments, subject to transfer limits controlled by the core business system. When the balance of local operating accounts reaches a certain threshold, funds can be manually swept to the CTC’s header account.

To further streamline the treasury procedures, the core business system is directly connected with the partnering bank, which enables a single portal management of multiple accounts. Overseas subsidiaries can handle cash concentration and daily liquidity settlement by fully electronic means.

From the perspective of internal management, CGN Huasheng has propelled CGN Group’s overseas expansion and globalisation through centrally managing its offshore liquidity and financing needs of member companies. The CTC monitors the safety of liquidity in offshore accounts and commences investment business in a safe and prudent manner with a view to retaining or adding capital value. It also provides professional and integrated financial services for member companies. Since its establishment, the CTC has participated in almost all of CGN Group’s overseas acquisitions by providing initial funding and related foreign exchange services.

Hong Kong provides a multitude of advantages: no restrictions over capital movements, transparent information flow, efficient government bodies, robust banking system and capital markets, geographical and cultural proximity to the Mainland, etc. Hong Kong’s withholding tax and corporate treasury centre tax regime are also favourable for CTCs to set up in the region with lower cost. The CTC tax incentives introduced by the Hong Kong SAR Government in 2016 has increased Hong Kong’s competitiveness as a CTC hub.

• Risk management: the offshore cash pool enables concentration of liquidity among jurisdictions without capital control. For accounts that cannot be concentrated, they are still under a centralised monitoring and management system that helps safeguard offshore liquidity safety.
• Efficiency enhancement: CGN Huasheng became the centralised treasury to connect with banks and carry out daily treasury transactions for member companies. Treasury efficiency is thus increased, complemented by an automated liquidity management system.
• Yield improvement: based on a market-driven business model, CGN Huasheng provides member companies with favourable deposit and lending rates, and nil settlement costs, resulting in lower cost of capital. The CTC also achieves profitability itself given its competent cash management capability, generating, for example, about HK$150 million profits and around HK$800 million retained earnings in 2020.