NZ business and public sector organisations rethink debt
Tuesday 26 February 2013
New Zealand business and public sector organisations rethink debt
New Zealand businesses and public sector organisations are being more prudent in their approach to debt management than before the global financial crisis, shows the latest PwC’s New Zealand Debt Survey of organisations with $50 to $500 million of outstanding debt.
PwC Partner Roger Kerr says, “Debt management remains a significant area of focus for most New Zealand businesses and public sector organisations.
“Interestingly, and unlike the situation experienced during the global financial crisis (GFC), the issue isn't that borrowers are worried banks will be reluctant to lend money, rather organisations and their Boards are more aware of the risks associated with debt.”
PwC interviewed more than 80 New Zealand respondents representing organisations with a combined $16.6 billion of outstanding debt, or an average of $195 million per organisation. The idea behind PwC’s survey was to better understand how organisations, often with limited treasury resource, make decisions about debt management.
“Organisations well remember how difficult times were during the GFC. With current economic woes, it’s pleasing to see New Zealand entities are acting with greater prudency.
“Of course, this translates into some companies putting the brakes on aggressive expansion plans as they take a wait-and-see approach which impacts economic growth,” says Mr Kerr.
Many organisations have taken steps to reduce risk to their debt funding activities and mitigate the impact of any sudden deterioration in funding market conditions.
“We found some companies are refinancing well in advance of their needs and want to avoid showing debt as current in their financial statements,” adds Mr Kerr.
PwC Partner and Banking Sector Leader Sam Shuttleworth agrees with the survey’s finding that banking relationships are often historically based.
“Banks are very good at understanding their clients’ needs around funding and when to engage with them about funding requirements. The survey confirms most organisations are unlikely to change if a bank has shown the ability to lend through economic cycles without major changes to pricing, availability and terms and conditions.
“The survey found organisation’s greater prudency is also showing in the way organisations are building back-up in their banking facilities. So, instead of using two providers, some are beginning to engage the services of a third, and this approach has the added advantage of injecting further competition in an already competitive market,” adds Mr Shuttleworth.
Between private and public sector organisations, Mr Kerr says there is a marked difference in the way organisations approached their funding needs.
“The local government sector makes greater use of
debt capital markets and is more likely to have or be
considering obtaining a credit rating.
“With the recently established Local Government Funding Agency, councils have an additional funding option and can now generally access funds at cheaper rates than they could borrow in their own name. This is good news for councils and rate payers," concludes Mr Kerr.