Citi Treasury and Trade Solutions
10
Tyco International: Setting Up the Necessary Pipes to Bolster China Business Growth
The Challenge
With more than USD10 billion in annual revenues and 11 percent share of an USD100 billion fragmented market, Tyco is
the world’s largest pure-play fire protection and security company. Tyco’s growth strategy stems from its ability to drive
recurring service revenue from a world-class customer base and leverage an expanding presence in high growth
markets. With 65,000 employees in nearly 50 countries, Tyco has advanced safety and security for more than three
million companies worldwide.
China is an important strategic growth market for Tyco, yet it is also a challenging market to operate in from a cross-border
liquidity management perspective. To support growing operations in 20-plus Chinese cities, Tyco had to seek short-term
domestic funding on a regular basis, while its surplus cash in China could not be accessed outside of China. The
borrowing requirements within China incurred additional costs as well as administrative resources.
With ongoing RMB liberalization and the establishment of the Shanghai Free Trade Zone in 2014, Tyco saw the
opportunity to tap intercompany funding (in RMB) into China on a streamlined and efficient basis as well as incorporating
surplus cash in China into its global pool of funds. This has significantly improved their working capital management and
enhanced operational efficiency within China.
The Solution
Partnering with Citi, Tyco implemented an automated two-way cross-border RMB sweeping structure, as one of the first
pioneers of companies using an automated means to bring funds into China.
The company is now able to perform cross-border RMB sweeps from and into China on a true end-of-day basis from its
finance entities outside of China.
Tyco chose Hong Kong to manage their RMB flows, as Hong Kong has the deepest RMB liquidity, which best suited the
company’s needs to convert surplus USD into CNH to fund their working capital position on a regular basis.
The Result
With the cross-border RMB sweeping structure in place, Tyco has managed to:
• Reduce external funding costs in China, and thus improved its balance sheet efficiency since reduction of their
working capital cost translates into a higher return on assets
• Allocate resources previously spent on administrating the intercompany loans to other priority projects
• Access surplus funds in China
By integrating RMB into its global treasury management structure, the company has now established the basis for
adding further treasury services to its Chinese entities. Integrating them into its global treasury management structures
will support Tyco’s long-term strategy in China, which is a growth market for its domestic sales and operations.
However, India and China, the two biggest
countries by population and growth for more
than two decades, have long had strict currency
controls that made it difficult and expensive to
move funds across borders. A number of
multinationals with established businesses in
these markets have built up huge amounts of
surpluses that are “trapped” domestically.
Companies looking to establish and grow in
these countries have also struggled to provide
debt-based funding to their subsidiaries.
Spotlight on China
At least in China, which garners great interest
worldwide, this is starting to change. China has
taken a number of incremental steps to promote
the renminbi (RMB) as an international currency
for settlement and investment. Under such
measures, the flow of RMB and foreign
currencies across borders has been made
possible and significantly easier for both local
and foreign currencies.
A number of multinationals with established businesses in these markets
have built up huge amounts of surpluses that are “trapped” domestically.
