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As refinancing bubble looms, global competition for capital is likely to intensify, according to a Deloitte study.

Fuente:   Fecha:  25.03.2011


Capital to become competitive differentiator

Global competition for capital is likely to intensify as over £7 trillion of financing falls due within the financial and non-financial corporate sector in the next five years, limiting the availability of debt capital, according to the Deloitte study A Tale of Two Capital Markets.

Based on an analysis of debt of more than 9,000 large companies in the G20, the report summarises the looming global debt picture. The split between cash-rich businesses and those in need of capital has created a two-tier economy, with growing challenges for small and medium-sized companies.

Margaret Ewing, Deloitte partner and vice chairman, commented: “The credit crisis of 2008 and the volatile post-crisis environment create ‘a tale of two capital markets’ for businesses today. In this climate, capital is, more than ever, a powerful competitive asset and companies who can raise capital early have a clear advantage. Not only are we probably at an inflection point on interest rates, with UK gilt yields beginning to rise, but economic recovery is constrained by weaker demand within developed economies.

“CFOs of highly indebted companies need to address their refinancing requirements sooner rather than later to improve their financial flexibility and boost their liquidity position.”

James Douglas, partner and head of debt advisory at Deloitte, commented: “As the economic recovery continues, liquidity demands will continue to rise as working capital demands increase and debt originated during the credit boom falls due. Increased regulatory pressures will constrain banks’ abilities to fund their lending activities as cheaply as before, and will require greater capital to be held against liabilities.

“With £500 billion* of UK banks’ wholesale term debt due to mature by the end of 2012, UK banks may also be vulnerable to volatility in the wholesale funding markets. This could constrain their appetite for lending over the next few years.

“CFOs of large UK companies can diversify their sources of finance by accessing the capital markets but smaller companies, who generally rely on bank financing, may face reduced availability of credit. Overall, this represents a significant competitive advantage for large companies, especially those with low debt levels, over their smaller competitors. To overcome this, CFOs within the SME business community need to be imaginative when seeking sources of finance and to consider the widest possible range of options.”

The Deloitte study found that despite the constrained economic environment and short term rise in interest rates globally, CFOs are optimistic about their ability to increase their capacity to service debt. Many said they will first turn to the cash reserves their companies built before and during the recession. Companies with strong cash flows and low leverage have many strategic options to increase shareholder value through a combination of acquisitions, share repurchases, dividends, and organic growth.

The study also found that:

Although there is £5.5 trillion in cash reserves across the world’s 9,000 largest companies, these reserves are unevenly distributed and mainly reside in the financial services industry, with only about £1.2 trillion of cash among non financial companies. Unless this cash is deployed to refinance companies, there is a potential deficit in refinancing non-FSI debt.

The Americas account for most of the maturing debt, with £3.4 trillion out of £7.0 trillion globally. Asia has the lowest magnitude of debt, but also has the highest proportion of outstanding debt maturing with 69 percent set to mature in the next five years. Similar patterns of increasing debt maturities across the world suggest intensifying global competition for capital.

According to recent CFO surveys by Deloitte’s member firms, on average, 62 percent of CFOs plan to maintain or increase their debt level over the next three years, and 50 percent plan to use their existing cash reserves to pay down debt.

* Bank of England: Financial Stability Report, December 2010 | Issue No. 28