Filling the funding gap

New avenues

Strong multinationals have access to bond markets and others can tap private placements, but where does this leave the remainder of mid-cap companies who need to raise capital?

Non-European banks are increasing activity in the region as cross-border demand grows. Fitch Ratings says Japanese banks have benefited greatly from European bank deleveraging. Mitsubishi UFJ has reported a 27% increase in its overseas loan balance, while Mizuho and Sumitomo Mitsui each revealed 24% increases. This growth means that overseas loans rose to 19% of loans at Mitsubishi, 16% at Sumitomo Mitsui and 13% at Mizuho. Fitch expects the banks to continue hunting growth by increasing their overseas exposure, most likely through direct lending.

In addition, markets are continually evolving to fill the funding gaps, while many organizations and funds are considering stepping in.

Joining the crowd

These types of funds may be here to stay, but other options such as crowd-funding and peer-to-peer lending are on the rise. Peer-to-peer lending links lenders directly to borrowers. The arrival of John Mack, ex-CEO of Morgan Stanley, at peer-to-peer company Lending Club, is widely interpreted as a serious enhancement of its credibility.

Although a largely consumer-focused avenue, some peer-to-peer houses are focusing on businesses. For example, Funding Circle matches private investors with businesses looking for finance, and has funded over £30m worth (US$47m) of loans to 703 companies in the last two years.

Flexible friends

So how should corporates evaluate borrowing needs? Chris Lowe, a Partner in the EY UK Capital and Debt Advisory Group, believes that price shouldn’t be the only issue. Deliverability and flexibility have gained in importance as vendors see certainty that a bidder can follow through on a deal as increasingly critical.

“Deliverability is the ability to get funds to the lender,” Lowe says. “Where there is a shoot-out between potential providers, the decisive factor is normally who can provide the funds at the lowest cost. As an advisor, we think that’s important, but flexibility is also vital. The structure of a facility, and its covenants, should be right for the business that is doing the borrowing. Whichever method you are using, you need to ask yourself whether the facility and its structure meet the borrower’s needs.”

Article from: Capital Insights

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