Nearly 70% of UK chief financial officers think lower base rates have reduced interest rates on existing bank borrowing, but had little or no effect on obtaining new credit and many now see issuing equity as a more attractive funding route.
The latest quarterly roundup of CFO sentiment from Deloitte
finds that CFOs have not seen benefits from the Treasury and the Bank of
England’s quantitative easing efforts on the price or availability of credit.
Only 10% of CFOs expect an improvement this year, 59% see credit conditions
improving in 2010 and almost one-third do not see any improvement until 2011 or
later. “Consequently, CFO sentiment about the financial prospects of their
businesses remains depressed, but less so than in previous quarters,” says
Deloitte partner and vice chairman, Margaret Ewing.
However, the
latest
survey shows equity issuance as a more popular route to finance
than leverage options, such as bank borrowing or corporate bonds, for the first
time since Q3 2007. “Most CFOs take the view that a period of rapid debt
accumulation, coupled with a contraction in overall equity supply so-called
de-equitisation is over,” says Ian Stewart, chief economist at Deloitte. “CFOs
are looking to a profound shift in balance sheets away from debt and towards
equity.”
These sentiments chime with recent equity issuance deal flow from the
FTSE-100 and the FTSE-250, as companies including Lonmin, 3i, DSG, Travis
Perkins and several more have conducted rights issues in recent months. In
September 2008, just 4% of CFOs felt it was a good time to issue equity. This
figure rose to 25% by March 2009.
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