Location: Stamford
Author: Jeanine Canneto
Date: Thursday, January 22, 2009
Asian companies are responding to the global credit crunch and economic slowdown by quickly scaling back their financing needs.
In the fourth quarter of 2008, Greenwich Associates interviewed more than 500 treasurers and finance directors at large companies in Asia about how their companies are being affected by the deepening global economic downturn and the continuing breakdown of the world’s credit markets.
The results reveal that Asian companies’ access to many forms of essential funding diminished from the start of October to the end of November, but to a lesser extent than that of companies in Europe. In particular, Asian companies say funding conditions during that period deteriorated in acquisition finance, structured finance and in funding for capital expenditures. Also on the decline was Asian companies’ access to hedging products. The exceptions to this trend were working capital lines, for which conditions did not tighten from October to November.
“Asian companies’ access to funding for both capital expenditures and working capital has deteriorated to a lesser extent than it has for companies in Europe, indicating that banks have been more willing to support companies’ organic growth plans in emerging markets,” says Greenwich Associates consultant Markus Ohlig.
Companies Respond to Deteriorating Conditions
With the relatively recent experience of the 1997 financial crisis, many companies in Asia have clearly learned to adapt quickly to changing economic conditions. Thanks to this flexibility — and large cash reserves accumulated over the past few years — most Asian companies have not yet had to draw down on their bank credit lines to a significant extent. At the end of November, an average 47% of available corporate credit lines were drawn down across Asia — unchanged from a year earlier.
Companies in Asia have been fast to scale back their funding needs — in many instances faster than their counterparts in Europe. In November, 30% of companies in Asia reported that their need for acquisition finance had been reduced, compared to 20% in Europe. In structured finance, 23% of Asian companies said their needs had diminished, compared to 18% of companies in Europe.
A small share of Asian companies appear to have been caught in a financial squeeze. Eight percent of companies in the region said they were having difficulty securing working capital lines at the same time their working capital needs were expanding. Six percent said their access to financing for capital expenditure had been diminished while their need for capex funding was increasing.
“The good news for companies in all regions is that many firms made the prescient decision to negotiate new financing facilities and extend existing facilities in late 2007 and early 2008 when this was still comparatively easy to do so,” says Markus Ohlig.
To subscribe or visit go to: http://www.riskcenter.com