Yangzijiang Financial bags liquidity pool scheme for investments outside China 

YANGZIJIANG Financial’s : YF8 0% wholly-owned subsidiaries have secured a liquidity pool scheme by the People’s Bank of China that will allow the group to grant inter-company transfers of up to 10 billion yuan (S$1.9 billion). 

The subsidiaries are Jiangsu New Yangzi Commerce & Trading and GaoHong International, the company said on Friday (Nov 25). 

Under the liquidity pool scheme, the group will be able to deploy its capital in and out of China more quickly, and in a “cost-efficient manner”, through intra-group transfers.

This is particularly important as Yangzijiang Financial has a long-term target to diversify half of its investment portfolio to markets outside of China, said the company. 

The scheme will also help the group maximise its cash management returns through forex and interest rate differentials between the yuan and other currencies such as the Singapore dollar or the US dollar. This will enable it to redeploy its capital for other investments. 

Yangzijiang Financial said it will also be able to consolidate and centralise its cash management through the scheme, allowing it to use its domestic and foreign funds in a “tax-efficient manner”. 

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One way of transferring funds from China to overseas countries is through the qualified domestic limited partnership (QDLP), which lets foreign asset managers raise money – in terms of yuan – from individuals and institutional investors in China for overseas investments. Another way for Chinese companies to transfer funds to their overseas holding companies is by declaring dividends from available profits. 

The QDLP method has no related costs, while dividends come with a withholding dividend tax of 5-10 per cent. 

By comparison, the liquidity pool scheme will allow fund transfers between Chinese companies and their group companies outside of China directly through intra-group loans. While the scheme has inter-company-related interest expenses, these will be eliminated at the group level, Yangzijiang Financial said.

Vincent Toe, chief executive of the company, said that recent market volatility has created “several long-term investment opportunities for quality assets in the region”.

“We are starting to see pockets of opportunity for long-term investments that have the potential to generate good returns and a sustainable dividend yield for our shareholders. As such, the liquidity pool scheme has come at an opportune time, and marks a step forward in our ability to efficiently deploy capital from China to overseas,” he added. 

Shares of Yangzijiang Financial shed 2.8 per cent or S$0.01 to close at S$0.35 on Friday.