Adam Smith Awards Case Study: Dow Chemical (China) Investment Co Ltd

Distribution finance program improves Dow Chemical's working capital

The challenge 

In today’s fast-changing economic environment, effective working capital management and maintaining a healthy cash flow have become increasingly challenging for treasury management. These are crucial not only for supporting business growth but also for providing flexibility needed to navigate unforeseen complexities and to capitalize on emerging opportunities. As business volume continues to grow in APAC, the Dow regional treasury team has been committed to exploring innovative solutions for optimizing working capital. 

The solution 

In partnership with Citi, Dow launched the inaugural Distribution Finance (DF) Program in March 2024 in Singapore and China. This is an innovative and sophisticated solution of synthetic securitization to optimize working capital and support business growth, offering a more advanced solution compared to other traditional account receivable programs. 

The underlying logic is the sale of receivables from a group of buyers as a portfolio solution. Given the large pool and diversified risk, the solution leverages an innovative risk management by applying statistic modelling and risk sharing between Citi and Dow without credit insurance. 

Citi purchases the Account Receivables of the entire portfolio and collects payment at a future maturity date by appointing Dow as the collection agent. The solution enables the company to generate cash flows earlier, shortening the cash conversion cycle, reducing DSO, and optimizing working capital in a systematic way. 

The portfolio approach allows quick expansion of the program, minimizing operational burden and customer interference. 

With this, Dow was able to quickly achieve a program size with an aggregated amount of US$127m within three months and expand further to US$359m within six months, covering multiple selling entities across Asia Pacific.

Best practice and innovation 

Time-to-market was critical to the success of this transaction. The Dow APAC Treasury team was able to identify the opportunities and implement the innovative solution in just three months across two markets. The initial discussion started in December 2023, with the first batch of funding released in March 2024. 

At every stage of the implementation, the team has shown best practice in dealing with the complexities of the regional treasury and country laws. By leveraging an excellent, collaborative working relationship across multiple functions such as sales, credit, accounting, invoicing, and legal team, and Citi’s DF solution, ensured a strong partnership was quickly forged.

Key benefits

• Working capital improvement.
• Economic of Scales.
• Risk mitigation.
• Automation via digital platform.
• Operational efficiency and flexibility. 

“We have been delighted with the success of our DF program and the commitment and partnership shown by Citi and the cooperation between multiple functions at Dow. We look forward to Citi’s ongoing support to expand the program further and appreciate their flexibility, quick implementation and benefits,” says Shirley Chen, APAC Treasury Director.

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