Case Study: Railroad

CRRC Corporation Limited (CRRC) is a listed company with world-class capabilities in product lines including high-speed trains, high-power locomotives, railway trucks, and urban transit vehicles. The company has exported its products to countries and regions across six continents.

CRRC captured the growth opportunities of the global railway equipment market by proactively investing in overseas markets, expanding global operations, and optimising offshore resource allocation. The large size of offshore structure necessitates higher standards for the safety of offshore accounts, liquidity of offshore funds, and efficiency of centralised treasury management.

CRRC designated CRRC Hong Kong Capital Management Corporation Limited (CRRC HK Capital) as its offshore corporate treasury centre (“CTC”) to support and manage its offshore treasury activities. Leveraging Hong Kong’s advantages as an international financial centre, CRRC HK Capital undertook a wide range of services including offshore cash concentration, debt financing, loans to subsidiaries, foreign exchange risk management, settlement, debt investment, etc.

The CTC’s work to manage offshore treasury aims to fulfil the following requirements:

• safety of offshore accounts: dynamic global environment and changing regulatory landscape have set higher standards for the visibility and oversight of offshore funds and transactions.
• liquidity of offshore funds: funds in designated currencies are required to be remitted to specific countries precisely and without delay.
• efficiency of centralised treasury management: given the broad scope of offshore business, centrally managed offshore treasury activities can reduce redundant procedures and reduce operational risks and costs.

CRRC partnered with a Chinese bank with strong international presence in Hong Kong to build a three-layer cash pool structure. The first layer is the Hong Kong CTC; the second layer consists of the offshore subsidiaries’ accounts in Hong Kong; and the third layer comprises the offshore subsidiaries’ accounts in their local regions.

Under the structure, subsidiaries transfer funds from their local accounts in the third layer to their corresponding accounts in the second layer in Hong Kong on a quarterly basis. Funds will then be concentrated into the CTC’s header account automatically by the banking system every day.

As an ideal hub for corporate treasury activities, Hong Kong’s well-developed capital market enables CRRC to access funding at lower costs. This also provides a solid foundation for the company’s offshore treasury network, and serves as an effective support for the company’s global business development.

Hong Kong also has unique edges in its proximity to the Mainland and its comprehensive RMB businesses. As the world’s largest offshore RMB pool, RMB trade settlement centre and RMB financing centre, Hong Kong has been at the forefront of Chinese corporates’ outbound investments. CRRC’s going-global strategy, along with the trend of RMB internationalisation, has made Hong Kong the destination of choice.

In addition, the overall competitive tax environment in Hong Kong and Hong Kong’s supportive banking services are key factors in CRRC’s consideration of CTC destination.

The cash pool structure results in improvements in:

• visibility: Some of the offshore accounts (including those from different banks) can be displayed on a single portal, and the remaining offshore accounts are gradually being included as well;
• controllability: CTC in Hong Kong can manage its global accounts using the one-point-access portal from its partnering bank, and perform functions such as managing subsidiary employees’ access rights, handling account balance and transaction enquiry, and executing payment instructions; and
• concentration: CTC can centrally manage the liquidity in countries and regions with no capital control, and use automatic or point-to-point manual procedures to concentrate offshore subsidiaries’ idle cash.

Furthermore, the automatic cash concentration system helps reduce manpower costs and substantially improves global cash sweeping efficiency. The centralised management of global liquidity through account structures optimisation further reduces foreign funds risks and improves capital safety and yield.