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
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 email@example.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
FRANCIS HO TREASURY DIRECTOR, CLP HOLDINGS GROUP