China Resources Holdings said six of its Hong Kong listed subsidiaries were seeking approval from shareholders to lend money to one another, a strategy the group said would make better use of surplus cash.
'Instead of letting the money sit in banks on low interest rates or putting it in high-risk investment products, we wanted to make better use of the money,' said Frank Lai Ni Hium, chief financial controller of China Resources Enterprise.
Lai said that every year around Lunar New Year, China Resources Enterprise, one of the six subsidiaries, would see an influx of cash because of a rise in the buying of prepaid gift cards among its mainland supermarkets, a popular present for employees and friends.
China Resources Enterprise, which focuses on business in supermarkets, beer, food and beverages, said that in the past it would allow the four sections to borrow money from one another at 1.5 per cent interest, far below mainland banks' loan rates of about 5 per cent and above.
Lai said China Resources Enterprise was the first to come up with the idea to spread this model to the five subsidiaries, China Resources Land, China Resources Power Holdings, China Resources Cement Holdings and China Resources Gas Group.
Some market watchers have questioned the safety of the proposal, saying that it could expose the lender to a loss if the holding company goes bust. One said that if the company wanted to match funding needs of seasonal cash flow, then the subsidiaries should merge.
But Lai said that approach would be like buying a whole farm just because someone wanted to drink milk.
