HSBC has provided Philips with a market-first treasury solution in mainland China. This first-of-its-kind netting solution reduces the hundreds of intra-group multi-currency transactions that Philips entities in mainland China make each month into a single RMB cross-border transaction, streamlining processes, lowering costs, and unlocking working capital.
Philips operates nine entities in mainland China, making more than 4,000 intra-group cross-border transactions across seven currencies each year. Because these entities could not be integrated into the group’s global netting structure, Philips treasury teams onshore and offshore must allocate substantial time and effort to manually process hundreds of cross-border payments each month.
Yvonne Yiu, Co-Head of Global Payments Solutions, Asia Pacific at HSBC comments: “Multinationals’ need for centralised and optimised treasury processes increases as their businesses in mainland China grow. Through the adoption of our industry-leading solution, companies can greatly reduce the manual processing of their cross-currency transactions, materially lower the cost of each transaction, and vastly improve the visibility and control of their cash flow. Furthermore, this solution creates opportunities for overseas entities to transact in RMB, allowing them to achieve greater efficiencies in FX risk management.”
HSBC and Philips held multiple rounds of discussion with the People’s Bank of China (PBOC), ultimately obtaining consent to roll out a market-first cross-currency netting solution in mainland China. The netting solution leverages Philips’s existing cross-border cash pool set up under the PBOC’s free trade enterprise structure.
Kathy Yu, Head of Treasury, Asia Pacific at Philips comments: “HSBC has been our longstanding trusted advisor as we expand our business in mainland China. This groundbreaking netting solution removes many treasury-related pain points, unlocking our onshore working capital, reducing both the volume and the cost of our cross-border transactions, and improving our FX risk management.”
How the solution works
Each month, intra-group cross-border foreign currency payments and receipts related to Philips entities in mainland China are converted into RMB using Philips’ in-house bank exchange rate. This serves as the basis for calculating the RMB netting settlement.
The multiple cross-border transactions in different currencies within the same calendar month are netted into a single transaction, with RMB as the settlement currency. This is settled cross-border between Philips' domestic netting center (FTE) and the Group's overseas netting center.
At the same time, each company or division settles a single netting transaction in RMB with the domestic netting settlement center (FTE).