A new Allen & Overy report has found that almost half of the Australian business leaders surveyed expect their need for credit to increase during the next two to three years and that banks remain the favoured avenue for funding.
The research, based on responses from 1,000 business leaders across large international companies in 19 countries, shows that 42 percent of Australian business leaders expect need for credit to rise in the near future. According to A&O partners Tony Sparks and Chris Robertson this is as a result of corporates looking to act on expansion plans in the near future, securing funding ahead of time and refinancing issues. “There is a well known wall of refinancing coming up in the next 12 to 24 months,” said Robertson.” A lot of companies need to plan for that refinancing, and when you add to that any plans for expansion, particularly if you are in an industry growing, then the overall net requirement for funding goes up.”
The survey also found that Australian businesses were more inclined to use debt from banks than alternative funding sources. “We have a market here which has been dominated by the bank lending market,” said Sparks. “For a variety of reasons we have not developed alternative funding markets which have developed in offshore jurisdictions.” Responses suggest the trend was unlikely to change much in coming years, with more than half (53 percent) of Australian business indicating they were likely to increase their reliance on bank loans compared to only 42 percent in the case of global businesses over the next five years. However, given that only 17 percent of Australian respondents said they expected to find it harder to access funding in the future, Sparks says this may suggest that companies are comfortable enough with their current banking relationships to see them negotiate extensions of their existing funding arrangements.
However, although banks are still the favoured source for debt, A&O has seen a slight change in the market with regards to alternative funding solutions. “One thing we have noticed is that corporates are increasingly looking at diversifying funding sources,” said Sparks. Alternative sources of funding favoured by Australian corporates include Asian-based lenders in general syndications, institutional funding sources, offshore bond markets and other alternatives such as an Australian corporate bond market, which according to Robertson is also on the agenda again. “Companies able to keep a stable maturity profile using a mix of funding sources should do well while those exposed to one particular source of funding could struggle,” said Robertson.
The report is the second in the 50 Degrees East series looking at how Asia's rapid growth and development is expected to influence business decision making in the future.
Related stories:
A&O reports M&A deals up 22 pct 17 October 2011