Case study: creating a triple-layered treasury system to enhance cash management

Background

China Huadian (CHD), one of five state-owned sole proprietorship power generation corporations, is becoming a more prominent international player in the energy sector. It now has operations in over 11 countries globally, resulting in over 200 bank accounts across multiple providers. Such an extensive overseas presence poses risks for CHD in terms coordinating settlement control and the security of funds in overseas operations.

Consequently, China Huadian Overseas Assets Management Co Ltd (Huadian Overseas Assets) was established in Hong Kong in early 2018 as the sole overseas fund management and financing platform for CHD.

Ultimately, BOCHK worked with Huadian Overseas Assets to set up a physical capital pool, extending it to Indonesia, Singapore, Vietnam, Cambodia and Canada. This tailor-made solution centralises cash and control automatically, enhances fund security in overseas operations and increases CHD’s foreign currency deposit yield.

A four-pronged system

Huadian Overseas Assets had a standardised system with four mechanisms:

1. A standardised overseas cash management mechanism to manage overseas resources and prevent capital risks.
2. A normalised operation mechanism for cross-border funds to expand financing channels and reduce financing costs.
3. An intensive overseas bond management mechanism covering demand sorting, regulatory approval, institution selection, capital allocation, information disclosure and repayment of principal and interests.
4. A coordinated cooperation mechanism, where Huadian Overseas Assets aims to collaborate with financial institutions for overseas fund management, project financing, cross-border financing, interest rate management and innovative capital market financing.

Building a triple-layered digital treasury management system

With assistance of an expert team from BOCHK, Huadian Overseas Assets built a triple-layered digital treasury management system that has improved the top-level design of the four mechanisms to ensure the operational system is smooth and effective.

1. Integrated global transaction banking – BOCHK provides CHD with an integrated global transaction banking platform for accessing account information at Bank of China (BOC) branches overseas as well as at other banks. BOCHK can re-format MT940 messages sent from other banks to BOCHK and display account activities information in a user-friendly layout via a global transaction banking platform so that the group’s corporate treasury center (CTC) can view and monitor all accounts globally.
    
2. Tailored master and subsidiary cross-border cash pooling – BOCHK set up five local cash pools in different currencies. The funds are physically concentrated on a daily basis into a group’s CTC’s master account with a safety minimum balance at the participant accounts. BOCHK's transaction-based downward sweeping function provides an automatic sweep from header to participant accounts when there is an outward payment initiated from a participant account with insufficient balance. Further, idle funds above the minimum balance will be concentrated automatically according to a fixed schedule of the CTC to make it more operationally efficient and optimise interest.
    
3. Premier deposit interest optimisation – With group interest optimisation, CHD’s group accounts in Hong Kong benefit from a higher deposit interest rate with a high level of savings balance. Interest rate tiers and levels for each currency are pre-agreed, with a higher tier for a higher total balance for all accounts in the group. A savings rate is then applied to each account, every night, according to the respective interest tier. Interest optimisation is available for accounts across multiple entities in multiple currencies.

In a forward-looking move, Huadian Overseas Assets has also joined SWIFT and completed the implementation of relevant hardware facilities and the construction of the supporting system. This addresses concerns about CHD operating in locations without BOC branches,

In the future, banks will greatly increase the number of interfaces through one-point access to the SWIFT system, and network access management will be implemented on a trial basis for the national bank where the project is located. It will effectively enrich overseas fund supervision methods.

To date, CHD's CTC has successfully connected 16-member units of the group, using services including account opening, payroll and tax payments to improve operational efficiency.

With this triple-layered cash pool in place, CHD’s treasury team can now centralise and automate the management of funds for its global business with a standardised system and four mechanisms.