1. thecorporatetreasurer.com40 corporate treasurer AugUST / September 2015
Thailand’s regional
treasury centre lure
The country has provided more flexibility to treasury centres, and thrown
in some trade and tax perks to boot. Ann Shi reports
A
s part of a master plan to
open up its capital account,
Thailand’s central bank, the
Bank of Thailand (BoT), has
relaxed foreign exchange
(FX) related rules to lure companies
to set up treasury centres (TCs) in
the country. The changes were made
effective in May.
Key moves included the removal of
the one-year tenor cap for cross-border
intercompany lending, simplified
documentation for intra-group
transactions, and easier management for
FX bank accounts.
TC licences have been available in
Thailand since 2004, but the response
has been poor. Up to 2014, only three
companies – Sony, Panasonic, and US
glass producer Guardian Industries – had
obtained licences.
Companies need an international
headquarters (IHQ) licence, granted by
the Revenue Department, to gain tax
benefits such as zero tax on interest gains
offshore, branch income, or capital gains,
explained Nutt Lumbikananda, director of
FX administration and policy department
at the BoT.
Thailand also offers an international
trading centre (ITC) licence that cuts
the cost of buying and selling goods for
exporters and manufacturers.
The Corporate Treasurer spoke to PTT
Exploration & Production (PTTEP) and
Thai Union Frozen Products (TUF), the
most recent companies to obtain a licence,
to learn why having a TC in Thailand
benefits them. Both have also applied for
the IHQ licence.
As Thailand’s national oil producer,
PTTEP aims to double production and
sales volumes in five years. PTTEP
operates about 43 projects in more than 11
countries around the world, and around
42.2% of the company’s asset book value
sits outside of Thailand.
Pooling liquidity
By operating a TC, PTTEP is centralising
the liquidity of about 20 wholly-owned
subsidiaries globally, cutting out the time
it takes to seek approval from the central
bank for each cross-currency transaction
and increasing the efficiency of cash
utilisation, said Sira Srisuksai, manager of
cash and liquidity management at PTTEP.
Through intra-company cash pooling
and automated cash sweeping, PTTEP
is now able to reduce the group’s overall
minimum working capital requirement
from approximately $300 million on a
daily basis to about $150 million. And the
freed-up cash can serve more expansion
needs, Srisuksai said.
For an exploration and production
(E&P) project, cash pooling “can eliminate
the cash call process from our corporate
account to project account by automating
cash transfer, which can provide just-
in-time funding and reduce idle cash
sitting in the project account”, explained
Srisuksai, adding that the company
needed to create a separate project account
designed for investment into E&P projects
specifically.
Without cash pooling, the company had
Sira Srisuksai,
PTTEP
to forecast the expenses needed for an
E&P project on a monthly basis, and then
transfer the estimated cash amount from
the corporate account to project account for
payment to vendors. PTTEP can now make
the payment to vendors from the project
account first, and sweep the equivalent
cash amount from the corporate account to
the project account at the end of day.
In addition, acting as the single point of
investment, PTTEP can utilise the group’s
excess liquidity to invest in the projects
deemed to bring higher returns to the
group, Srisuksai added.
Visibility offshore
TUF’s group CFO Joerg Ayrle shares
similar objectives. Setting up the global
TC is primarily to improve visibility at
the group level of its operations. It must
also act as the hub for better liquidity
management, reducing the company’s need
for large cash buffers.
With multiple acquisitions, the frozen
food conglomerate has gained market
positions all over the world. In 2014, 44%
of TUF’s total sales volume came from the
US market, 29% from Europe.
To centralise its liquidity back to
Thailand, TUF is aiming to implement
the cash concentration of its European
operations by the end of the third quarter
of this year, and early next year in the US,
said Yongyut Setthawiwat, Bangkok-based

2. thecorporatetreasurer.com AugUST / SeptEMBER 2015 corporate treasurer 41
thailanD
Out with the old... thailand’s new treasury centre rulesgroup treasurer at TUF.
TUF has multiple bank accounts across
Europe. Among others, it uses Rabobank
in the Netherlands, Societe Generale in the
UK, and Intesa Sanpaolo in Italy as its cash
mandate banks.
Under its planned global TC setup,
TUF has opened a foreign currency (FCY)
current account with HSBC. Through this
mechanism, HSBC will conduct multi-bank
cash concentration for the company in
Europe, and then remit the FCY current
account net balance back to Thailand. The
shortage or surplus of the account will be
settled with a FX credit line that TUF has
signed with HSBC in Thailand.
Setthawiwat estimated that after the
implementation of liquidity centralisation,
TUF can reduce its daily cash on hand
down to $10 million at the group level,
from the current figure of around $50
million. The company can use the freed
cash to reduce its short-term debt, he
added.
The good, the bad
Under the new rules, a Thailand-based TC
can now lend to its subsidiaries in the form
of intercompany loans with tenors of more
than one year – removing the one-year cap.
Srisuksai said that as PTTEP is mainly
involved in long-term business projects,
it “therefore needs to structure its inter-
company loans with an open tenor that
does not specify the repayment date, which
the BoT considers a long-term loan”.
However, Srisuksai does not believe
the proposed relaxation on FCY deposit
account management is helpful, as the
group companies of a TC still have to
separate their accounts. He did not believe
easier access to baht borrowings would
make a big difference either, as most
multinationals – including PTTEP – are
typically funded in US dollars and use it as
their functional currency.
TUF’s Setthawiwat viewed the
documentation relief on TCs – for
underlying transactions of payment of
goods, services and loans, and for letting
a TC’s group companies keep their own
documents on FX transactions – as
beneficial in reducing administration.
Whatever your needs, be sure to
understand the benefits and the limitations
Thailand’s new TC rules offer. There’s no
gain being caught hook, line, and sinker. n
* PTTEP announced on May 29, 2015 that it has established PTTEP
Treasury Centre Company Limited, a subsidiary to solely operate as the
TC entity, rather than under the PTTEP entity.
Old rules (until April end) New rules (updated on June 20)
Foreign currency
deposit (FCD)
account
management
TCs need to segregate the FCD
accounts opened with domestic
financial institutions (FIs) into
two types: one for foreign
currencies earned from overseas
sources; and one for domestic.
Allow TCs to have just one type of
FCD account with domestic FIs to
deposit FX from both foreign and
domestic sources.
TCs can maintain the aggregate
outstanding balance of $500
million for:
• FCD (domestic sources)
opened with domestic FIs;
• FCD opened with FIs abroad;
and
• Debt securities investment
abroad.
TCs can purchase FX up to $500
million per year for the following
purposes:
• Deposit into the FCD opened
with domestic FIs without
having documents of
underlying transactions;
• Deposit with FIs abroad; and
• Debt securities investment
abroad.
TCs can maintain the aggregate
outstanding balance of $500
million for:
• FCD opened with FIs abroad;
and
• Debt securities investment
abroad.
Thai baht
borrowings
TCs can borrow baht from foreign
entities only in Vietnam and
neighbouring countries.
TCs can also borrow baht from any
group companies abroad – the
parent company, subsidiaries and
branches that authorise a TC to
provide treasury management.
Cross-border
intercomany
loan
TCs can lend to its group
companies with tenors of up to
one year.
TCs can carry out intercompany
lending with tenors longer than
one year.
FX hedging TCs can freely unwind hedging
transactions for goods and
services.
TCs can also unwind hedging
derivatives for FX lending/
borrowing, as well as for direct
investment to group companies.
Document
and reporting
requirements
With documents proving
underlying transactions, TCs can
deposit up to $500 million or the
equivalent in foreign currencies
per year with a domestic FI for
payment of goods and services
and loans.
No underlying documentation is
required.
TCs must keep their own
documents of underlying
transactions, as well as those of
the group companies.
Group companies of a TC are
allowed to keep their own
documents.
Payment and
netting
A TC is an agent of its group
companies for collection and
payment of trade and services,
and can net those transactions.
A TC can also collect and pay
FX-related returns on investment,
international trade and services,
including dividend and interest,
and net those transactions.
Source: Bank of Thailand