Hong Kong-based factoring company Novamondo Finance has completed an offshore transaction of onshore renminbi (Rmb) trade receivables in China.
The company purchased Rmb5mn of trade receivables from a large Chinese state-owned enterprise in the agricultural inventory sector. It then listed the receivables on the Shenzhen Qianhai Financial Assets Exchange, a marketplace for such assets.
A Hong Kong investment firm then purchased the receivables, using offshore Rmb. The buyer repaid the full amount in onshore Rmb, with Novamondo claiming this to be the first time such a structure has been used.
Company president Cobe Tsang tells GTR that the company had to gain regulatory clearance from the People’s Bank of China (PBOC) as well as local tax authorities before making the sale. This clearance will have to be obtained each time such a transaction is executed, with Tsang saying the process takes up to a week to complete.
However, he is confident that the value of cross-border receivables sales can be increased significantly. This initial Rmb5mn transaction was treated as a test run and with the concept now proven, Tsang expects investors to start looking to the market more closely.
“There’s no limit at this moment, we did Rmb5mn as we wanted to test the channel, so we did a medium-sized one. The next step, because we’ve completed a cycle, is to purchase more accounts receivables from China and sell them to overseas investors using the same logic and cycle,” he says.
Tsang adds that investors are “very interested in the market but they were very worried about whether they could repatriate their money”. This deal, he says, shows that returns can be repatriated to Hong Kong. While further details on the deal have not been disclosed, the pricing was in the single digits.
The partnership with the Shenzhen-based asset exchange allows them to tap local regulatory knowledge.
Novamondo launched in 2016, backed by “one of the three biggest families in Hong Kong”, Tsang said in an interview last year.
The company has partnered with CryptoBLK, the blockchain development company behind HSBC’s first live transaction on R3’s Corda last month. Novamondo and CryptoBLK launched a blockchain-powered solution aimed at facilitating faster transactions. The platform is still in testing mode.