• cash management
  • cash pooling
  • tax reform
  • trapped cash
  • zero-balance accounts

Bringing it all back home


Corporate cash piles have become a byword in recent years. But prompted by tax reform, fear of trapped cash and a need to level the playing field against bank partners, companies are repatriating and centralising as much as they can.

by Ben Poole

Published: 3 December 2019

Treasurers rely on cash management structures for visibility and control over corporate cash the world over. Sometimes, however, regulatory developments or changes to the company’s own structure can render a previously viable structure unfit for purpose. Before the 2017 US tax reform, for example, the majority of online travel giant Booking Holdings’ $10.9 billion of cash and investments was offshore.

Douglas Tropp, Corporate Treasurer, Booking Holdings Inc.

“We had cash piling up offshore and we had debt issuance in the US, and there is only so long that can go on before your gross leverage gets out of hand” explains Douglas Tropp, Booking Holding’s corporate treasurer. “Fortunately for the most part we are cash rich, every one of our brands is cash flow positive and in no need of debt. Given that our offshore liquidity prior to tax reform was mostly excess cash, we decided to put it to work and earn a market return. We reviewed our options and revised our investment policy to allow investment into credit”.

For Allen Davis, treasury manager, EME at US-headquartered agricultural equipment manufacturer Agco, the biggest cash management challenge was getting visibility over all the company’s bank accounts in his region.

“Our cash management structure for Europe and the Middle East was simply unworkable” says Davis. “We had over 460 bank accounts across 88 different banks with no automated solution in place for managing liquidity”.

Davis wanted a new cash management structure that would optimise cash balances across the group and minimise the amount of trapped cash in different regions, as well as minimise the administration requirements around maintaining that structure.

Spurred on by the tax reform, Booking Holdings conducted a bottom-up look at its capital structure and developed a roadmap to achieve an optimal structure in the future. “We’ve taken a look at how much we’re returning to shareholders, and what long term leverage should look like” Tropp says. “Our cash positions have changed dramatically, cash has come down as it came onshore and the company has not issued any new debt since 2017. Looking ahead, debt will remain in the capital structure albeit with a much lower cash pile”.

Changing the capital structure has therefore changed the company’s cash management strategy. The move to bring cash back to the US and therefore taking it out of some higher interest environments has prompted the decision to put it into corporate bonds in order to make it work harder.

Cash concentration options

Over at Agco, treasury opted for a bank relationship and account rationalisation programme, which saw a cash pooling structure replace the previous account complexity.

Allen Davis, Treasury Manager, EME, AGCO Limited

“Agco and its banks came up with a two bank solution that’s a combination of physical cash concentration movements to a single entity, multi currency, notional pool” Davis explains.

The main issue that companies find with cash pooling is that some versions are not permitted in certain jurisdictions.French-headquartered Safran, a multinational aerospace and defence firm, with €2.33 billion cash and cash equivalents listed on its books as of 31 December 2018, told EuroFinance that it uses zero balance accounts (ZBA) as the basis for its 20-year established cash management structure.

“We have around 30 ZBA cash pools across North America, Europe and Asia, centralised in Paris” says Sofiane Himer, Safran’s head of Treasury. “We have started to discuss with our bank partners if notional pooling can apply in specific countries where ZBA is banned. Some banks are saying notional pooling could be possible, and we are focusing on leveraging the relationship that we have with the bank that can implement notional pooling where ZBA is not possible”.

Extricating trapped cash

The worst nightmare for corporate cash concentration is trapped cash, where local jurisdictions or regulations make repatriation all but impossible. China has had a bad reputation for this in the past, but innovative treasuries are finding ways to connect China to global cash structures.

One such corporate is Autoneum, a global provider of acoustic and thermal management solutions headquartered in Switzerland, has built up its China operations dramatically in recent years, and now has seven legal units in the country.

Janko Hahn, Head Treasury Operations, Autoneum Management

“We mainly use two banks, an international bank from Germany and a local Chinese bank” says Autoneum Management’s Head of Treasury Operations, Janko Hahn. “We implemented a so-called multilateral-entrust loan, which is essentially a cash pool equivalent that you might see in a Euro cash pool zero balancing agreement. That works fairly well with our Chinese entities”.

From a tax point of view, the company has a principle to take out as much in dividends as possible. “Trapped cash is not a geographical challenge for us in China but more a challenge depending on the legal unit structure” Hahn said. “For example, in our joint ventures it always requires the two parties to agree on whether a dividend is paid or not”.

Of course, China is far from the only country where corporates are having to be innovative to free trapped cash, as Agco’s Davis explains:

“Trapped cash in Europe affects us more in our emerging markets such as Turkey and Poland. We had a situation where we had cash trapped in Poland. The intercompany loan structure that we wanted to put in place between Poland and our treasury company would have been subject to a CLA tax. Ultimately, Agco decided that we didn’t want to pay the tax if we could find another solution. As such, we started prepaying some of our Polish zloty invoices, from our subsidiary to our to our European principle company so that we can take advantage of the cash but through normal trade practices”.