UK companies spoilt for choice on funding -treasurers

Fri May 16, 2014 10:15am EDT

Related Topics

* Treasurers comfortable seeking non-bank funding

* Banks pricing loans more competitively

* Securitisation rising up treasurer's agenda

By Clare Hutchison

LONDON, May 16 (Reuters) - Healthier financial markets have given Britain's companies more choice in raising money, which is reducing their reliance on bank lending and helping some to get competitive prices when borrowing, corporate treasurers say.

Banks have historically provided around 70 percent of funding for British companies, but after the 2007-09 financial crisis they were forced to retreat from certain kinds of lending to meet new rules that required them to hold more capital. That squeezed some companies.

But financial decision makers at some of Britain's largest companies attending the Association of Corporate Treasurers (ACT) Annual Conference in Glasgow this week reported that they have been able to secure funding at competitive rates from a more diverse range of sources as financial markets recover.

"The markets look good. For us there seems to be attractive alternative options available," said Vinod Parmar, group treasurer at bookmaker Ladbrokes.

An ACT survey of 122 treasurers in Britain and continental Europe showed that bank loans account for a quarter of corporate fundraising, down from a third a year ago. Debt capital markets are the biggest source of funding, at 36 percent.

"With the bond markets you have got various options - wholesale, retail, convertibles - we can choose what suits best. There seems to be healthy demand for everything," Parmar said.

With greater choice, some treasurers, particularly those at larger or investment-grade companies, have been able to get more competitive prices from banks offering loans. Some even reported receiving cold calls from bankers they had never worked with looking to provide funding.

"We hit the timing right, there was a great deal of liquidity around and it created price tension that brought (the price) down," said Bob Cartwright, group treasurer of waste management group Shanks, who recently secured bank financing.

Cartwright said he ended up using more banks than originally intended in the process, after receiving better-than-expected terms for their services.

As well as capital markets, companies have been exploring other alternatives, including securitisation or asset-based lending, which now counts for almost a fifth of the advice treasurers give to their boards, according to the ACT survey.

The market for securitised debt shrunk after a class of the securities based on subprime U.S. home loans collapsed in 2007, sparking a global meltdown in markets and a banking crisis.

But it is set to make a comeback as policymakers across Europe want to encourage it, seeing it as a useful fundraising tool for infrastructure companies and small and medium-seized businesses that have struggled to get bank loans.

"It's very important from the point of view of low-cost funding and diversification. We regard it as a cheaper alternative to the bond market," said Paul Regan, group treasurer of packaging firm Smurfit Kappa, which has two securitisation programmes using receivables.

Greater liquidity has also enabled some firms to provide funding for suppliers, a process known as supply-chain financing. EDF Energy, the UK subsidiary of EDF SA, has such a scheme.

"The primary driver is doing the right thing," EDF Energy's Treasury and Insurance Director Alastair Russell told Reuters.

(Reporting by Clare Hutchison; Editing by Larry King)

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