21 February 2017

Efficient liquidity arrives

In order to maximise its liquidity and reduce borrowing costs, Aramex PJSC has partnered with HSBC to deliver the bank’s first interest enhancement deal for subsidising debit interest

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Aramex PJSC is a global express, mail delivery and logistics services company based in Dubai, United Arab Emirates. The firm, founded in 1982, is one of the fastest-growing logistics corporates in the UAE, employing more than 13,900 people across 60 countries.

Ultimately, Aramex seeks to be recognised as one of the top five global logistics and express transportation service providers.

In 2014, Arun Singh, Corporate Treasurer for the group, began looking for ways to maximise liquidity and transaction efficiency across the various Aramex entities based across Gulf Cooperation Council states.

The company had several banking relationships and multiple accounts in each state, making it difficult for Singh to have full, real-time visibility over account balances and cash flow.

Additionally, the key objective for Singh was the need to reduce borrowing costs from a bank that had a full suite of cash management solutions.

A further consideration for the group was that in some territories such as Oman, where local regulations restrict automated international movement of funds, solutions such as multi-currency notional pooling commonly used in regions such as Europe and the U.S. were not feasible options.

Drawing on a strong existing relationship with Aramex that began more than 20 years ago, HSBC was awarded the mandate to be one of the primary payments and cash management (PCM) bank for the group through efficient collaboration between the various internal stakeholders.

Taking into account the specific needs of Aramex, HSBC was able to tailor a liquidity and transaction solution for Singh that gave total oversight of the group’s regional cash flow which cut borrowing costs at the same time.

The liquidity solution comprises of cross-border interest enhancement to subsidise overdraft fees in the UAE based on credit balances Aramex holds in other Middle East countries. This is the first interest enhancement deal for subsidising debit interest by HSBC.

Besides the liquidity solution, the bank’s mandate also included SWIFT, remote deposit capture for cheque collection, linking of global accounts on HSBC’s propriety electronic platform HSBCnet, and MT 940 reporting for complete visibility.

With respect to the company’s daily close-of-business account balances, HSBC has in place a three-tiered credit balance reward structure with Aramex.

If the company maintains credit in other jurisdictions matching one of the three agreed-upon levels, HSBC discounts their overdraft pricing in the UAE by a pre agreed margin.

At the end of every day the closing positions are reported to the HSBCnet platform, which automatically processes the net notional balance in the USD base currency and determines whether a discount applies, and by how much. Interest is accrued on day end positions and applied on monthly basis.

The company receives a daily report on HSBCnet that states the total group balance, the notional aggregate balance and the notional interest rate due to be applied on the debit side.

In a few countries where SWIFT integration is ongoing, Aramex chose to integrate the HSBCnet platform with its in house payment IT infrastructure for seamless operations. 

The ancillary products such as the Remote Deposit Capture (RDC) and the purchase cards that make up part of HSBC’s mandate also resulted in increased efficiencies for Aramex, which complimented the strategic liquidity solution.

The RDC has allowed Aramex to deposit domestic cheques electronically with the bank. The system extends the bank’s cheque scanning process remotely to the client and combines cheque registration and data capturing. 

The process provides faster access to funds, reduces the receivable cycle by two clearing days compared to traditional data capture services and gives Aramex a late clearing facility, allowing the company to send instruments for clearing outside of branch banking hours.

Additionally, the purchasing cards help streamline entire requisition process and effectively manage the payment of business expenses by controlling and tracking company spending and reducing administrative costs.

Aramex has managed to streamline their government spends by using purchasing cards, which has benefitted them through simplified procedures, improved cash flows and spend security and controls. 

Efficient liquidity arrives

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.

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