Rather than begging for finance from a recalcitrant banking
sector, corporates are shunning the banks and accessing the equity markets to
deleverage, something many CFOs believe will continue well into 2010.
The latest survey from Deloitte found there were two CFOs planning to reduce
leverage in their own companies for every one planning to increase it throughout
economic recovery, which most of its respondents believed would start in 2010.
While the trend towards reducing debt is consistent with cycles of appetite
in the previous UK recession – and to be expected – the survey hinted that,
instead of companies being forced to do so because banks refuse to lend, many
are paying down debts and avoiding bank debt by choice.
Continuing a theme it found in the previous CFO survey, many CFOs are using
rights issues or corporate bonds to pay down bank debt. “CFOs have become
increasingly sceptical about bank finance as a source of capital for their
businesses through recession. Around 80% of CFOs expect deleveraging to
continue,” says Margaret Ewing, partner and vice chairman at Deloitte and a
former CFO of BAA. “If the banking system proves unwilling or unable to meet the
requirements of the corporate sector for capital, where can corporates turn?”
Looking beyond the return to recovery, CFOs expect bank lending to remain
elusive and are not relying on its return to previous form, as 90% think tighter
lending terms will remain on the radar of concerns “one year or more beyond the
end of recession”.
Many CFOs think the worst of the crisis is behind us and in cleaning up their
balance sheets, are less negative about their fortunes. The study found CFO
sentiment on the financial prospects for their business hit the highest levels
since Deloitte started the survey in 2007.
Twenty-two percent of CFOs said they were more optimistic in Q2 2009 than
they were in Q1, when 30% felt more pessimistic than they did in the previous
quarter. At its worst in Q4 2008, confidence slumped with nearly 60% feeling
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and compare our review of the previous CFO survey.
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