From the November 2007 issue of Treasury & Risk magazine

Gold AHA Award In Cash Management

Treasury's success depends in part on its ability to quickly mobilize global cash and direct it to where it will generate the highest returns. This task has been especially challenging for companies operating in the Asia-Pacific region, because of the large number and geographic dispersion of countries and the lack of a common currency. Compounding the problems, many countries in this region do not have open economies, freely convertible currencies or state-of-the-art banking infrastructures or capital markets. To overcome the obstacles, according to Pui Yee Lee, director of international treasury at Honeywell International Inc., "Honeywell needed to develop and implement a treasury strategy specifically tailored to the Asia-Pacific region."

To gain efficiencies, Honeywell quickly opened regional offices in Singapore and Shanghai and selected one primary cash management bank for each country: Deutsche Bank was chosen for Korea;
HSBC for Taiwan and Hong Kong; Bank of Tokyo Mitsubishi for Japan; and Citigroup for the rest of Asia. Honeywell worked with its banking partners to implement the most appropriate cash-pooling structure permitted in each country.

Whenever regulation and tax policy permitted, surplus cash was moved from in-country pools to a central concentration account, located at Honeywell's treasury coordination center in Brussels. These funds were then used to reduce debt balances or invested in high-yielding assets. "When cross-border concentration wasn't possible, Honeywell worked with its Asian banking partners to achieve optimal investment returns within each domestic market," Lee reports.

As a result, today, Honeywell's annual bank fees in Asia are $1.7 million lower than in 2003--a 40% savings. During 2006, interest income increased by $2.1 million, as yield improved by 60 basis points. Substantially all of Honeywell's Asian cash is concentrated with its chosen partner banks, and either deployed as inter-company loans or invested domestically at competitive market rates, Lee reports.

Honeywell currently has clear visibility into its cash balances in Asia through its SunGard Quantum workstation, which is complemented by an in-house Web-based reporting system. "Improving our liquidity management processes allowed Honeywell to minimize external debt and interest expenses and improve investment returns," Lee reports. "Cash remaining in Asia is currently invested in accordance with our global investment policies to maximize investment returns. This strategy reduced manual processes and lightened the workload of our Asian businesses," she adds.

Because many traditional treasury solutions are not available in Asia, streamlining Honeywell's processes required resourcefulness. Working with Citigroup, Lee and her team implemented a fully automated cash-pooling structure using bilateral entrustment loans to achieve liquidity management objectives in China. By working with banking partners, Honeywell improved its yields on certain investments in China by 200 basis points. Cash was also invested in a rated Chinese Renminbi liquidity fund offered by JPMorgan Chase Asset Management, which yielded incremental investment returns of about 150 basis points. Now when Honeywell invests in standard bank time deposits, it negotiates additional value through reduced bank guarantee or funding rates in other Asian countries.

In Korea, business practices dictate that companies maintain a disbursement account at the bank of the "chaebol" (parent) of each of its suppliers. In response, Honeywell and Deutsche implemented a multi-bank cash sweeping structure. Daily balances at 13 different banks are automatically swept into a Korean concentration account at Deutsche, Lee says.

At the end of the day, Lee says that treasury has been able to obtain the support of business unit leaders to drive the required process changes, thanks to demonstrated cost savings.