Case study: how Laos’ largest mining company found the right treasury management partner
Background
Lane Xang Minerals Limited (LXML), the largest international mining company in Laos, has operated the Sepon Gold and Copper mine since 2002. LXML is jointly owned by the Lao government (10%) and Chifeng Jilong Gold Mining (Chifeng) (90%), which is a Shanghai-listed metals producer headquartered in Inner Mongolia that completed the acquisition of its stake from Australian-based MMG Limited in 2018.
To facilitate its business settlement arrangement, LXML operates a set of bank accounts outside Laos for international trade and has local accounts onshore for its domestic operations. In line with MMG Limited’s legacy arrangement, LXML has been working with an international banking group for its Australian accounts.
Following Chifeng’s acquisition, LXML started conversations with other banking service providers.
Turning point for a new partner
As part of its former banking relationship, LXML had already built host-to-host connectivity to link its enterprise resource planning (ERP) to the bank’s system to enable access to account information and to initiate payments. However, in 2019, after evaluating its current operations, LXML decided to engage a new ERP vendor – in turn, this provided an opportunity for LXML to consider whether its banking partner offered the best fit.
As part of this process, the Vientiane branch of Bank of China (Hong Kong) leveraged its relationship and geographical footprint to approach LXML and propose a new account structure. This proposed to move the set of accounts from Australia to Hong Kong.
Given the proximity factor, along with foreign exchange policies and market infrastructure, Hong Kong was chosen as the right location, both for Chifeng as well as for LXML, to help conduct international settlement.
The bank also proposed a host-to-host connectivity solution for the company’s bank accounts in Hong Kong and Laos, to ensure account visibility and payment initiation. Further, given LXML’s need for offshore RMB settlement, the bank’s experience in RMB solutions was a key benefit in the solution.
After LXML started the integration process for the ERP and banking partner, offshore accounts were opened in Hong Kong in September 2019, with the host-to-host connectivity with Bank of China (Hong Kong)’s Vientiane branch completed in October 2020, bringing annual transaction volume of over $300 million.
Going forward, LXML and the bank will explore potential offshore RMB settlement with its customers.
Step by step to ensure a smooth journey
The cross-border element of this process posed challenges for the project team. For example, LXML’s chief financial officer is located in Laos, while the company’s technical support team is in Beijing and the ERP vendor is in Australia. The project team also consists of a regional team at Bank of China (Hong Kong), located in both Hong Kong, and Vientiane.
Meanwhile, for the host-to-host connectivity with its former banking partner, LXML had adopted the semi-straight-through model. As a result, after LXML submitted payment instructions to the bank via its ERP, approval was required on the online banking platform prior to payment execution by the bank. To improve the process, Bank of China (Hong Kong) suggested a straight-through model, in which payment approval is completed in the ERP before instructions are submitted to the bank for execution. The approach provides an opportunity for LXML to enhance its autonomy on payment handling and treasury management efficiency.
After performing a feasibility study with LXML, Bank of China (Hong Kong) developed an additional online banking approval function – especially for the company – to allow a transition period for LXML to get internal systems and procedures ready for the straight-through model.
Since LXML is the first host-to-host connectivity customer for the bank’s Vientiane branch, the bank also completed various internal product governance and technical testing procedures during implementation.
In line with this commitment to LXML, as the ERP vendor has limited experience in system integration with banks, Bank of China (Hong Kong) has allocated additional professional resources to coordinate and smoothen the system development and testing process.
Striking a balance between LXML’s priorities and difficulties in development, and the need to provide flexibility for the ERP vendor’s technical development, the bank also proposed a phased approach for implementing connectivity functions: first, via local and international payment initiation, and secondly, then account enquiry, payroll, etc. The bank’s online banking platform also became an alternative channel during transition.
Customer-centric at the core
Being the first host-to-host connectivity solution that the Vientiane branch of Bank of China (Hong Kong) has implemented, this project marks a significant milestone in the bank’s strategy to extend top-tier products and services to customers in Southeast Asia.
This partnership also demonstrates the bank’s unwavering commitment to its customers – from its bespoke solution on the choice of offshore account location, to the customised implementation process that included the new online approval function, to its extra efforts in coordinating with the ERP vendor, to the proposal of the phased project plan. With professional teamwork coupled with a customer-centric culture, the bank will continue to bring long-term value to customers like LXML, while also helping customers keep up with the trend of RMB internationalisation.
