Transaction banks adjust to new demand from Asia

The global networks have been built and the tracks laid, pioneered by international banks following their Western clients’ expansion into Asia. And now, global transaction banks are focusing on the latest wave of Asian corporates taking their business in the opposite direction.

Banking the ‘Asian champions’, as they have been called, uses the same systems and processes, but the difference is in the approach. For Western banks that have built transaction services with multinational corporations (MNCs) from their home markets, the emerging Asian corporations are spurring them to shift their viewpoint.

“Banks have to re-engineer the way they look at life,” says Andy Dyer, ANZ’s head of transaction banking for Asia-Pacific, Europe and America.

There have been three waves of Asian MNCs, the first of which started about 60 years ago, says Karen Fawcett, group head of transaction banking at Standard Chartered. The Japanese household names, such as Sony, were in the first wave, and South Korean companies such as Samsung were in the second. “Then there are the Chinese companies, which have almost leapfrogged stages and built operations around the world,” says Ms Fawcett.

Mr Dyer notes that Asian companies are in different states of evolution when it comes to their international expansion. “Now the movement is with Chinese and Indian companies, and they are having to adapt their transaction banking,” he says.

China's push

Chinese multinationals have already started to make their mark at a global level. In the Fortune Global 500 ranking of the world’s biggest companies by revenue, China Petrochemical Corporation – also known as Sinopec Group – ranks fifth, China National Petroleum Corporation (CNPC) sixth and State Grid Corporation of China seventh.

 They have all expanded internationally in recent years. In May 2013, Sinopec announced its intention to acquire assets in Kazakhstan, Colombia and Russia for approximately $1.5bn and, in June, agreed two deals in Russia. CNPC was reportedly in talks to acquire Brazilian oil start-up Barra for approximately $2bn in May and, in June, it signed a deal to develop oil and gas assets in Tajikistan. State Grid expanded into Australia in May, by acquiring stakes in SP AusNet and Jemena from Singapore Power.

The presence of Asian companies in the global energy sector, and other industries, has been increasing. Research by global bank Citi notes that Asian companies’ share of revenue in the world’s largest energy companies increased from 9% in 2005 to 22% in 2012. Thailand’s PTT and Indian Oil also feature in the global ranking of top 20 energy firms by sales. In the industrial sector, China State Construction, China Railway Construction and China Railway Group rank among the world’s largest companies.

The expansion of the Chinese energy and industrial corporations falls in line with China’s long-term strategic plans. John Laurens, HSBC's head of global payments and cash management, Asia-Pacific, points to a broader trend of Chinese multinationals expanding internationally and says that the development of onshore financial centres, financial infrastructure, and the internationalisation of the renminbi is part of the Chinese authorities’ broader plan to support Chinese multinationals in their global expansion.

Globalisation 2.0

China’s expansion is part of a wider globalisation story that involves many emerging markets. Michael Zink, Citi’s head of the Association of South-east Asian Nations region and country officer for Singapore, highlights that companies in the first wave of globalisation were from G-7 countries in North America, western Europe and Japan, which expanded after World War Two. “Now we are in globalisation 2.0,” he says, explaining that the latest phase has shifted to companies from G-20 countries expanding across the world.

Catherine Low, ING’s country manager for Singapore and head of international trade and export finance for Asia, says: “In the past five years we have seen more enquiries from Asian clients about supporting them overseas." Ms Low adds that this is all part of a natural evolution, given the development of the Asian region. “Asia has been growing in the past 10 to 20 years, it is inevitable that these companies, which have reached significant presence in home markets, look beyond Asia for further growth,” she says.

Faisal Ameen, head of treasury products for Asia-Pacific at Bank of America-Merrill Lynch (BAML), says that the Asian corporates are at different levels of maturity in terms of their international expansion. He says that many companies in Asia, a large proportion of them Japanese and South Korean, are already true multinational companies with sophisticated treasury set-ups. As other companies in Asia evolve in their stages of development, they increasingly require sophisticated treasury structures as they expand their international footprint.

Household names

Many Japanese and South Korean companies are already household names in the technology sector. And in the auto industry, Citi’s ‘Rise of the Asian Champions’ report ranks Japan-based Toyota Motor second in the world after Volkswagen. Nissan and Honda, also from Japan, rank among the world’s largest auto companies, along with South Korea’s Hyundai and Kia Motors, China’s SAIC Motor and Tata Motors from India.

Tata Motors is now the 20th largest auto company in the world by sales and, in 2008, it completed its acquisition of the UK’s Jaguar and Land Rover from Ford. Tata and telecoms firm Bharti Airtel are two Indian multinational brands that are becoming known at a global level. Although the Asian representation in the telecom sector is dominated by Chinese firms, Bharti Airtel now ranks 33rd in the world and now operates in 20 markets across Asia and Africa.

Nirmal Khaderia, head of Asia-Pacific corporate sales for BAML, says that the Asian MNCs have grown at a rapid pace, surpassing many expectations. “Companies are now focusing on managing and restructuring their international treasury in a way that is more efficient versus business growth which was the sole focus in initial years,” he says. 

Similar approach

Percy Batliwalla, head of Asia-Pacific sales at BAML, says that when the companies started with their growth they started in a fragmented way in terms of their treasury management and management of liquidity. “A couple of years ago the trend was how to centralise visibility at the regional level, now it is how to do it at a global level,” he says.

In terms of the actual transaction banking needs of such companies, Manfred Schmoelz, Asia-Pacific head of transaction services at RBS, explains that the conversations are similar, whether it is an Asian client wanting to go to Europe or vice versa, the main difference being that European companies may have had a longer history of operating globally. 

Mr Ameen says that the services offered to 'Asian champions' at BAML are no different from those offered to traditional clients, but adds that “there is more hand-holding, more questions and answers, more discussion from the front end all the way to the back end”. 

According to Margaret Yao, Asia-Pacific regional sales executive at JPMorgan, “the difference is more in the approach. In some markets there is less knowledge around treasury techniques and so there are more conversations about best practice."

Treasury choices

Chinese and Indian corporates typically have a treasury based at the company’s headquarters, which has strong influence and control over the company, according to Jiten Arora, Standard Chartered’s global head of sales, transaction banking. “As they extend into international markets there is the realisation that they have to tap capital markets internationally, have to support international businesses and have to set up international treasury centres,” he says. “There is a huge amount of risk management and detailed advice expected from banking partners."

Ms Fawcett at Standard Chartered says that one difference with Chinese companies in their approach to treasury centres is that “they are letting their sales lead the international charge, and then following it by setting up treasury centres behind that. For Western MNCs, the treasury was focused mainly on managing the cost of operations and harmonising their processes. For Asian corporations, it is a way of helping drive sales activities internationally.” 

Another feature of Asian MNCs is that they are keen to benchmark themselves against their competitors in the same industry, and know how their peers manage their treasury. “That gives them a keen awareness of where they need to go and how they get there much faster,” says Mr Batliwalla at BAML. “They are very keen to know how someone else has done it."

The advantage for the 'Asian champions', says Mr Zink, is that they are following the path of the previous generation of US and European multinationals. “They are learning from the same playbook,” he says. “They have the advantage that the networks with the banks to serve them already exist. Two generations ago we were making it up as we went along – we were not in a networked world then."

Fast-forward operations

The networks are not just those that have been laid down by the global transaction banks, but also the technology networks of e-mail and broadband that the Asian companies now have at their disposal. “They are expanding into a set of networks that are much more robust – their expansion can be very rapid,” says Mr Zink. Mr Dyer shares a similar viewpoint. “The MNC treasury textbook has been written for them – they can be faster followers," he says.

What would have taken Western MNCs 10 years to achieve a decade ago, says Mr Laurens at HSBC, is now achievable by Chinese and Indian companies in two to three years. “They wish to jump to a world-class level,” says Mr Laurens.

On the question of whether new technology means that these champion companies can leapfrog their US and European counterparts, Mr Laurens gives the example of one Chinese multinational that wanted to go straight to real-time liquidity management.

“It would have been easy to say ‘here’s the product’ but we needed to look at its back office first. It was running paper tickets – to move it to real-time liquidity could have left it with some serious short positions. We had to re-engineer its back office before it was ready,” he says. He adds that building a relationship and trust with a client is particularly important in situations such as this. 

Reversing the flows

One requirement that is different for Asian companies, says Ms Yao, is the position of their home market within the world’s time zones. “US dollars always settle in the US, which is the last time zone,” says Ms Yao. For a US multinational sweeping its dollars back to the US, this action ‘follows the sun’ and comes at the natural close of the world’s business day. But things are more complicated for Asian companies that want to sweep their dollars back to Asia.

With the US clearing systems operating 22 hours a day, in theory, the clients can be agnostic about holding US dollars in the US as they should be able to settle across multiple time zones at any time of the day or night. But Ms Yao explains that many Asian clients prefer to have their accounts closer to home on an Asian time zone, and may opt to keep their US dollar accounts in Hong Kong, for example.

“At the close of the Asia business day for them to bring the dollars back from other regions they are in the wrong time zone,” says Ms Yao.

With requirements such as these, Asian corporates are pushing the product development for transaction banks, which built their business on the flows going in the other direction.

US multinationals, says Mr Dyer, typically raised money in the US and so their treasury was structured so they could take liquidity out of operating countries in Asia and pay back the debt in the US. “For a US company it is natural because you are following the sun. At the end of the Asian day, if you are an Asian company and Hong Kong is your centre of financing – and where the debt is centred – if you want to do the same thing [and sweep to where the debt will mature] you are going against the sun. You have to reverse the flow completely of when the business day finishes and when New York starts,” says Mr Dyer.

Another challenge for companies is dealing with regulations in the various jurisdictions in which they operate. Chinese companies, for example, with headquarters in China may not find it easy to repatriate funds. Mr Schmoelz at RBS notes that this is one reason why Indian and Chinese companies are choosing to establish treasury centres in Singapore. And, while much activity has been in Asian corporates setting themselves up for international expansion, Western MNCs are also setting up global treasury centres in Asia, he adds, because the region is where they see the shift for their future growth.