Case Studies: Oil and Gas

Revitalising offshore funds through an integrated treasury management system

Expand All

Collapse All

About the company

Sinopec Group is an ultra-large petroleum and chemical company established in Beijing, and is one of the largest petroleum and petrochemical companies in the world.
Challenges

Sinopec Group has a large number of overseas subsidiaries, covering a wide range of businesses such as crude oil and natural gas extraction, crude oil processing, petroleum and refining engineering design and construction, refined oil and chemical products processing and sales, etc. These companies are scattered in many locations and each has distinct treasury needs. As a result, the group seeks to improve offshore liquidity efficiency and maximise yield returns through centralising the management of offshore treasury activities.
How does the CTC work?

The group set up Sinopec Century Bright Capital Investment Limited (Century Bright) in 1995 as its offshore treasury centre (“CTC”) to handle financing, fund settlement, foreign exchange, and cash management of overseas subsidiaries. Century Bright selected Hong Kong as the offshore operational hub, where it was able to build a comprehensive treasury management system to serve the needs of member companies.

Riding on its advantages as the group’s CTC, Century Bright built a three-layer liquidity structure with an established Chinese bank in Hong Kong. Member companies maintain their local bank accounts to fulfil daily operational needs, with sub-accounts being assigned under the CTC’s cash pool in Hong Kong for central management of large-value payment and collection on their behalf, thus promoting more effective visibility and control over liquidity information. At the same time, Century Bright integrated its treasury management system with the partnering bank’s platform, thereby enabling subsidiaries to exercise control and manage their liquidity needs automatically and handily.

As a CTC, Century Bright centrally manages the subsidiaries’ large amount of liquidity. It provides diverse services including settlement, financing, foreign exchange and investments, as well as the centralised management on payment, collection, and accounting. This resolves the pain points and difficulties experienced by member companies in their treasury activities.
Why Hong Kong?

The offshore operation of Sinopec Group involves substantial volume of funds and multiple countries with different currencies. Century Bright must also consider member companies’ high expectations on the timeliness of payments. It sees Hong Kong as its preferred location to set up a CTC given that the city is one of the world’s most active foreign exchange centres with a mature banking sector and no capital control. This allows the CTC to handle frequent foreign exchange transactions to ensure timely and efficient cash allocations.

In addition, as an international financial centre, Hong Kong is known for its free flow of capital, stable currency exchange rate, and an independent and fair judicial system. The geographical proximity to the Mainland also enables Century Bright to maintain close interactions with its headquarters. Given the soundness of Hong Kong’s financial system, the company can benefit from access to the city’s advisory services and a wide variety of banking products provided by professional financial institutions.
Benefits

Since the set-up of the CTC and the centralisation of treasury management, Sinopec Group has effectively revitalised member companies’ offshore funds and considerably reduced their treasury management costs. Hong Kong’s free flow of capital and simple tax system have also substantially increased the firm’s liquidity management efficiency.

As of 2020, Century Bright has managed hundreds of offshore companies, involving more than ten currencies and hundreds of accounts from dozens of countries and regions. The volume of funds settled has reached the equivalent of trillions in Hong Kong dollars in 2020. Going forward, Century Bright will continue to provide efficient and professional treasury management services for Sinopec Group’s offshore members, and play a pioneering role in the development of the group's overseas business.

Unlocking the mobility of cross-region liquidity to empower global expansion

Expand All

Collapse All

About the company

Chinese state-owned enterprise China National Petroleum Corporation (CNPC) is one of the country’s top oil and gas producers. With presence across the globe, CNPC operates an integrated business portfolio that spans the entire oil and gas value chain.
Challenges

Certain areas in PetroChina International (Hong Kong) Limited (PCI), for the reasons of time difference and settlement efficiency, remained decentralised. Prior to 2019, PCI operates in a decentralised treasury model across multiple trading entities located in Australia, Hong Kong, Singapore, Japan, the Middle East, U.K., Canada, and U.S. As each subsidiary managed its own operations, it often required them to rely on costly external funding or bank overdrafts to meet payment obligations for crude oil trades.
How does the CTC work?
CNPC Finance (Hong Kong) Limited (CPFHK) was incorporated in 2008 in Hong Kong as a wholly owned subsidiary of China Petroleum Finance Co. Ltd (CPF), CNPC’s in-house bank and treasury platform. As the sole offshore treasury centre (“CTC”) under CPF, CPFHK is positioned to integrate and facilitate CNPC’s offshore funds management and provide comprehensive financial services for the group’s overseas operations in supporting its internationalisation strategy. Its key services include regional and global cash pooling, internal and external financing, guaranty, investments, as well as the design and implementation of solutions for member companies for offshore trade settlement, foreign exchange and financial derivatives hedging.

CPFHK sought a solution that would allow better controls over PCI’s liquidity without undermining the flexibility of the CTC in managing the high funding requirements of trading companies. It also wanted to improve PCI’s overall funding efficiency and reduce costs associated with external borrowings.

CPFHK therefore partnered with a global bank to implement a global cash and liquidity structure that integrates PCI’s global trading entities into a unique two-tier USD physical cash concentration structure with two header accounts under CPFHK and PCI respectively.

The solution automatically sweeps excess balances from PCI’s subsidiaries across multiple banking partners into the CTC’s header account in Hong Kong on a daily basis. The balances are aggregated and further utilised to fund payment obligations in other markets or invested to enhance yields. The structure is fitted with two innovative mechanisms focused on the solution for time difference and settlement efficiency:
- the “against-the-sun” (ATS) mechanism facilitates the sweeping of funds from U.S. to Hong Kong without any loss in value in liquidity that is received after cut-off hours.
- the “advise-to-receive” (ATR) capability enables funds received from subsidiaries after cut-off hours to be credited into PCI’s accounts on the same day and used to fulfil its payment obligations.
The balance of PCI header is automatically swept to CPFHK header account at day end. This structure enables CPFHK to retain control and oversight of PCI’s cash operations, while incorporating PCI into the broader finance structure of CNPC.
Why Hong Kong?

As a state-owned enterprise delivering a global strategy, it is imperative that CNPC establishes an offshore hub in a location with proximity to the headquarters for close collaboration and governance, deep capital markets that support international fundraising, and ample talent pool that allows the establishment of a competent and effective finance team.

The location also needs to have sound banking infrastructure and capabilities to enable an automated global liquidity solution to support CPFHK’s overall internal funding requirement and management of idle cash. Hong Kong has provided all of the above and is a natural fit for CNPC.
Benefits
The structure has enabled PCI line of business to concentrate over 30% more of its surplus balances into the CTC pool, generating treasury efficiencies in the form of:
- 20-30% reduction in requirement for external borrowing and interest cost through better utilisation of internal cash to fund payment obligations across global subsidiaries;
- ability to enjoy same-day liquidity without loss in value and to utilise incoming fund received after cut-off hours for payment;
- increased return of surplus balance through concentrating cash of overseas subsidiaries; and
- improved visibility and control of overseas subsidiaries.

Last revision date : 14 July 2022