HK eyes trea­sury crown Against a back­drop of the yuan’s in­ter­na­tion­al­iza­tion and more main­land en­ter­prises eye­ing over­seas for­ays, Hong Kong has been urged to for­tify its strengths to ce­ment its sta­tus as Asia’s cor­po­rate trea­sury ac­tiv­i­ties cen­ter. ex­ami

Oswald Chan

China Daily (Canada) - - HONGKONG -

In July, the Cor­po­rate Trea­surer re­ported that Asi­abased bud­get air­line AirAsia has de­cided to es­tab­lish its re­gional trea­sury cen­ter in Malaysia this year, and hopes it can kick-start within the year to keep up with its re­gional ex­pan­sion by im­prov­ing cash vis­i­bil­ity and han­dling for­eign ex­change risks.

AirAsia’s decision is not an iso­lated case — more multi­na­tional com­pa­nies are beefing up ef­forts to lo­cate their cen­tral­ized trea­sury cen­ters in Asia. London-based re­tailer Unilever set up its global trea­sury cen­ter in Mumbai in 2009 while Ja­panese car­maker Nis­san picked Sin­ga­pore as its trea­sury cen­ter in 2005.

A cen­tral­ized trea­sury man­age­ment (see di­a­gram) cen­ter will en­sure greater vi­a­bil­ity and trans­parency of cash man­age­ment, bet­ter cor­po­rate gov­er­nance and cash fore­cast­ing, risk ex­po­sure con­trol, liq­uid­ity ac­cess, and more tax-ef­fi­cient cash repa­tri­a­tion. It can also al­low com­pa­nies to im­ple­ment or­derly and sat­is­fac­to­rily poli­cies to gain bet­ter yield re­turns for ex­cess cash and en­able cor­po­ra­tions to ob­tain lower fund­ing costs. All th­ese value-added at­tributes can trans­form cor­po­rate trea­sury ac­tiv­i­ties from be­ing trans­ac­tion-based to value-added decision-mak­ing.

At the Trea­sury Mar­ket Sum­mit 2014 held in Septem­ber, trea­sury mar­ket pro­fes­sion­als reck­oned that with in­ter­na­tion­al­iza­tion of the yuan pick­ing up and main­land com­pa­nies ex­pand­ing over­seas, Hong Kong can lever­age on its premier off­shore yuan fi­nanc­ing cen­ter sta­tus to en­hance its po­si­tion as a trea­sury man­age­ment base.

“With yuan in­ter­na­tion­al­iza­tion and Hong Kong as a lead­ing off­shore yuan fi­nan­cial cen­ter, the city can emerge as an Asian trea­sury hub. The Hong Kong gov­ern­ment and the Hong Kong Mon­e­tary Au­thor­ity should look for strate­gic agen­das that can help Hong Kong stay com­pet­i­tive,” said He­len Hui, Stan­dard Char­tered Bank­ing (Hong Kong) trans­ac­tion bank­ing man­ag­ing di­rec­tor. “Main­land com­pa­nies can set up their trea­sury cen­ters and use th­ese cen­ters as bases to tap cheaper fund­ing out­side the main­land,” she added. Main­land plat­form

GE Cap­i­tal and Global Growth & Op­er­a­tions man­ag­ing di­rec­tor Vincent Liu told the sum­mit: “Hong Kong is the plat­form for over­seas firms to en­ter the main­land mar­ket, while it is also the plat­form for main­land en­ter­prises to em­bark on over­seas ex­pan­sion. The city has the unique ad­van­tage to help com­pa­nies to ex­pand their business.”

He also noted: “As the cen­tral gov­ern­ment strives to pro­mote Hong Kong as the off­shore yuan fi­nanc­ing cen­ter, the city needs to at­tract more multi­na­tional com­pa­nies to is­sue yuan­de­nom­i­nated bonds to en­able cor­po­ra­tions to tap more liq­uid­ity ac­cess. Ad­e­quate liq­uid­ity is very im­por­tant in trea­sury ac­tiv­i­ties man­age­ment.”

“As the main­land still ex­er­cises cap­i­tal con­trol, Hong Kong is the place for main­land cor­po­ra­tions to set up their trea­sury func­tions,” In­ter­na­tional As­so­ci­a­tion of CFOs and Cor­po­rate Trea­sur­ers (China) found­ing chair­man Peter Wong reck­oned.

“As the lead­ing off­shore RMB cen­ter, Hong Kong has a win­dow to re‐es­tab­lish our­selves as the Asian cor­po­rate trea­sury hub. Hong Kong should reach out and at­tract com­pa­nies look­ing to con­duct business on the main­land or gain ex­po­sure to main­land‐re­lated yuan (fi­nanc­ing business) growth, which in­clude com­pa­nies from the main­land and around the world,” the gov­ern­ment’s top fi­nan­cial ad­vi­sory body, the Fi­nan­cial Ser­vices De­vel­op­ment Coun­cil, said.

Be­sides the main­land fac­tor, Hong Kong has other strong at­tributes it can lever on to de­velop the city as a cor­po­rate trea­sury cen­ter.

“Hong Kong has the right lo­ca­tion that is close to the world’s sec­ond-largest econ­omy. The city also has the right time­zone that aligns with all Asian coun­tries in the same trad­ing hours, and with Euro­pean coun­tries in some trad­ing hours that can fa­cil­i­tate more trea­sury trans­ac­tions.” CLP Hold­ings Group trea­sury di­rec­tor Fran­cis Ho said.

Wong agreed with Ho, say­ing: “Hong Kong’s strengths as a trea­sury man­age­ment hub lie in three as­pects — its geo-po­lit­i­cal re­li­a­bil­ity that can pro­vide safehaven pro­tec­tion for fi­nan­cial as­sets; its high tech­ni­cal back­ser­vice stan­dards in con­duct­ing fi­nan­cial trans­ac­tion ac­tiv­i­ties; and its lower cost in­volved in trea­sury func­tions com­pared to other fi­nan­cial cen­ters in ma­jor de­vel­oped economies.”

“Hong Kong also has a higher den­sity of main­land and in­ter­na­tional banks than other ma­jor fi­nan­cial cen­ters,” Wong added. “Global eco­nomic ac­tiv­i­ties are shift­ing from Europe to Asia and more cor­po­rate merger and ac­qui­si­tion re­struc­tur­ing ac­tiv­i­ties in the Asian re­gion also boost de­mand for fi­nan­cial trea­sury ac­tiv­i­ties.”

How­ever, Hong Kong can­not be com­pla­cent as many mar­ket hur­dles are still block­ing the path to­wards ce­ment­ing Hong Kong as a ma­jor trea­sury mar­ket cen­ter.

“Hong Kong has a short­age of trea­sury mar­ket pro­fes­sion­als. In Hong Kong, most of the trea­sury mar­ket prac­ti­tion­ers do not pos­sess pro­fes­sional qual­i­fi­ca­tions. In­stead, they usu­ally get pro­moted to the top trea­sury job based on their ac­count­ing or business ex­pe­ri­ence. If we want to beef up in pro­mot­ing the trea­sury pro­fes­sion, we should cul­ti­vate the right tal­ent pool to foster in­dus­try de­vel­op­ment,” Ho cau­tioned.

Hui warned that air pol­lu­tion and the scarcity of in­ter­na­tional schools are caus­ing a short­age of ex­pert trea­sury pro­fes­sion­als. More­over, Hong Kong’s high liv­ing and of­fice rental costs are crimp­ing the city’s de­vel­op­ment as a trea­sury man­age­ment cen­ter. Reg­u­lar reviews

“Hong Kong should not be com­pla­cent as London, New York, Sin­ga­pore and Shang­hai have all re­viewed their poli­cies for pro­mot­ing a trea­sury cen­ter in or­der to stay ahead of the curve. Hong Kong should do reg­u­lar reviews to stay ahead to main­tain its sta­tus as a premier hub for trea­sury man­age­ment,” she added.

The Hong Kong Mon­e­tary Au­thor­ity (HKMA) and the Fi­nan­cial Ser­vices and Trea­sury Bureau (FSTB) will make con­crete pro­pos­als next year to re­view the re­quire­ments un­der the In­land Rev­enue Or­di­nance for in­ter­est de­duc­tion in cor­po­rate trea­sury ac­tiv­i­ties tax­a­tion, and clar­ify the cri­te­ria for such de­duc­tions.

The bid is en­vis­aged to at­tract more global or re­gional trea­sury func­tions be­ing re­lo­cated to Hong Kong through op­ti­miz­ing the in­ter­est de­ductibil­ity re­quire­ments for in­ter-company loans.

Ac­cord­ing to Price­wa­ter­house­Coop­ers’ (PwC) Asia Cor­po­rate Trea­sury Survey 2014, trea­sury ac­tiv­i­ties face many chal­lenges that are unique to Asia.

“Asia does not have a sin­gle cur­rency, there is no sin­gle reg­u­la­tor and the bank­ing land­scape is very di­verse. Be­sides, there are too many re­stric­tions and reg­u­la­tions gov­ern­ing the (cap­i­tal flow of) mul­ti­ple emerg­ing cur­ren­cies,” ex­plained PwC China and Hong Kong’s cor­po­rate trea­sury so­lu­tions leader Ian Far­rar.

The survey had in­ter­viewed 117 trea­sury pro­fes­sion­als from var­i­ous in­dus­tries, in­clud­ing com­modi­ties, trad­ing, man­u­fac­tur­ing, elec­tron­ics and tech­nol­ogy, on the main­land and in Hong Kong, Sin­ga­pore, Ja­pan, Malaysia, In­done­sia and Thai­land. It iden­ti­fied cash and liq­uid­ity man­age­ment as the two ma­jor trea­sury ac­tiv­i­ties for larger or­ga­ni­za­tions be­cause th­ese en­ter­prises are likely to be more ge­o­graph­i­cally dis­persed, and man­ag­ing fi­nan­cial and liq­uid­ity risk would be the key fo­cus ar­eas.

Work­ing cap­i­tal man­age­ment, as well as cash and liq­uid­ity man­age­ment, were ranked the two most im­por­tant ac­tiv­i­ties for medium-sized or­ga­ni­za­tions. Smaller or­ga­ni­za­tions placed more em­pha­sis on the im­por­tance of sup­port­ing their man­age­ment and business units and their business re­la­tion­ship with banks.

On fu­ture de­vel­op­ment, the re­spon­dents reck­oned that there’s a need to hire trea­sury mar­ket-skilled pro­fes­sion­als and to im­prove com­pa­nies’ cash fore­cast skills to en­hance cash vis­i­bil­ity and cen­tral­iza­tion. Con­tact the writer at oswald@chi­nadai­lyhk.com

Hong Kong is short of trea­sury mar­ket

pro­fes­sion­als. If we want to beef up

in pro­mot­ing the trea­sury pro­fes­sion, we should cul­ti­vate the right tal­ent pool to foster in­dus­try

de­vel­op­ment.”

FRAN­CIS HO TREA­SURY DI­REC­TOR, CLP HOLD­INGS GROUP

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