GTR’s Finbarr Bermingham asks Colin Tyler, CEO of the Association of Corporate Treasurers (ACT) about the challenges corporate treasurers face in accessing finance.
The ACT recently became the first organisation of its kind to receive a royal charter. It counts 6,500 qualified treasurers among its ranks, in 87 countries. In recent years, it has risen to prominence through its work with the Vickers Commission and Tim Breedon’s non-bank lending taskforce.
Before presiding over the ACT, Tyler served in senior treasury positions at a series of bluechip corporates, including Rentokil, City Link, Guinness and Amersham International.
GTR: What are treasurers finding to be the biggest issues regarding access to finance?
Tyler: If you went back 10 years, many treasurers would have been very comfortable with the relationships they had with banks. Banks would’ve been providing finance on what treasurers would consider to be quite generous terms. Documentation was relatively straightforward and what we thought was appropriate pricing back then, now appears to have been quite cheap. We had some very benign positions.
Post-2008, life’s become a bit more complicated. Banks are now looking at their structures; they’re looking at the returns they need to be able to afford the capital increases regulators are now demanding of them. As a result, it’s becoming more difficult to get finance directly from banks at the pricing and terms and conditions you think are appropriate, and the larger corporates are more willing to disintermediate banks and go directly to the capital markets.
In addition, because sovereign credits have been under pressure, corporate debt has been seen to be very attractive. It provides investors with a great spread in their portfolio and also gives them decent returns. It’s been a strong market in 2012.
It’s been difficult for smaller organisations which have relied on bank finance for many years. When a bank loan comes up for renewal, the conditions and availability are changing. Banks are now looking at their own portfolios and asking: ‘Do I really want to have this corporate in there? Is the pricing right? And by the way, I’m going to have to increase my pricing because I’m holding more capital.’
We’ve seen governments and central banks trying to stop that deleveraging by introducing the funding for lending (FFL) scheme, for example, which has started to be successful, but which is only a short-term measure.
Now we’re starting to see corporates and corporate treasurers starting to try to take control of their destiny and ask: ‘What alternative sources of finance can I tap into?’
GTR: From a corporate perspective, how much has trade been affected by recent changes to the regulatory environment such as Basel III?
Tyler: We believe that there has been a disproportionate impact on trade-related activities when in fact it isn’t commensurate with the underlying risk. So there’s a counterbalance between regulators wanting to make sure there’s not systemic risk, and of course they’re locking all the doors to make sure it [the financial crisis] doesn’t happen again.
But at the same time, we know that the recipe for getting out of the hole we’re in at the moment has got to be trade-led. We’ve got to encourage people to be great exporters and to grow global trade.
We believe that putting barriers that are disproportionate to the underlying risk in the way is not helping. Andy Haldane of the Bank of England said: ‘We should start regulating as though the real economy matters.’ When regulating, it’s essential to think through the implications. It’s important to realise that trade is relatively low risk, particularly if you’re using some of the great products that are available. It should be put into context because if it gets lumped into the same bucket as a set of instruments that were deemed to be risky, inappropriate and under-regulated, we’ve gone wrong somewhere.
I think there’s intent within the banks [to increase lending], and they’re making the right noises. But at the same time, they’re also running the rule over how things are going to work in the new environment. People are starting to establish how things are changing as a result of Basel III and wondering whether lending to new ventures is attractive or not.
GTR: There has been a swathe of supply chain finance (SCF) initiatives announced by both private and public bodies of late. How effective has this trend been in alleviating working capital issues for treasurers at corporates and SMEs?
Tyler: First of all you have to ask whether it’s a case of painting it pink and saying it’s new on the block. It [SCF] has been there since god was a boy. The best businesses have always actively managed their supply chains. What has changed – and it’s an encouraging development – is that there are now more electronic platforms that allow information to be shared.
The fact that people are talking about SCF means that they’re honestly trying to find solutions. Let’s face it; if you can manage your working capital, it’s a fantastic source of finance. If your alternatives are more expensive sources of finance from other people who are themselves having difficulty and therefore the pricing’s going up, it’s got to be an area to focus on.
GTR: Have you noticed in recent years that the risk appetite within the corporate world for taking on new ventures has become diminished?
Tyler: I wouldn’t say it has. Certainly multinationals are very comfortable with operating around the world, and the tools they use to measure the risk have improved. They probably provide greater insight as to the returns you need to make off the back of the risk to make it worth taking. What may have changed is the appetite to take on new relationships.
The appetite for people providing you with deals waxes and wanes, depending on the sector.
But I think treasurers are very busy evaluating deals and opportunities. Companies are increasingly exploring new geographies. We’re really noticing the move from west to east. China, India the Middle East and Asia Pacific are all more prevalent in people’s minds than they were 10 years ago. Africa is coming to the fore as well. I can think of a lot of people who are putting a great deal of time and effort behind the African market.
GTR: How do you evaluate the role of export credit agencies (ECAs) in encouraging international trade?
Tyler: In the UK, it’s pretty clear that the government has been active in getting behind the old Export Credits Guarantee Department (ECGD) – even renaming it [to UK Export Finance] so it becomes a more progressive vehicle. The people operating it are more commercially savvy and they’re more aggressive in supporting major projects.
I’d say the UK is no different than elsewhere: other governments are getting behind export finance too. You have to come up with the right conditions and materials to encourage organisations to take risk in a manner that’s appropriate, to take the medium-term view and provide a bridge between straight bank finance and as a result of that, corporations are being encouraged.
All of that is extremely positive.
The question is: is it going to make a huge difference? It’s difficult to see at this point in time how much traction it’s had, but it’s definitely got a higher profile, and that’s to be encouraged.