Corporate Finance Insights – Feb 2012

NAB’s Corporate Finance Insights reports utilise our expertise across a range of industry sectors to explore current issues, present forward […]

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NAB’s Corporate Finance Insights reports utilise our expertise across a range of industry sectors to explore current issues, present forward looking views and opportunities for growth and progression.  The report is published four times a year and explores topical issues facing Australian Corporates.

Welcome to the second edition of Corporate Finance Insights.

In our first edition of Corporate Finance Insights (August 2011), we focused on the challenges of funding and the potential impact of Basel 3 on corporate borrowers. In our client discussions over the last three months there have been two recurring themes: the challenges of risk management in a highly uncertain world; and the increasing need for sophisticated liquidity management by banks and corporates.

Looking forward to 2012, with the lack of clear resolution to the European sovereign debt crisis, the themes of heightened risk and focus on liquidity are set to continue. As we live through the second major phase of the Global Financial Crisis caused by government indebtedness, credit markets are likely to remain very expensive and all markets will remain volatile as they flip between recessionary and expansionary views of the world.

Our research shows that in the past three years most financial markets have exhibited more than double the risk observed in the years prior to the onset of the global financial crisis (GFC). No wonder CFOs and treasurers regularly comment to us that they are ‘feeling the heat’ around their risk management strategies. In many ways liquidity management had become a lost art form. With ample global liquidity up until 2007, there was no particular reason to focus on what would happen if liquidity dried up.

However, the GFC highlighted the consequence of insufficient liquidity and we have seen most corporates de-gear and build up liquidity reserves in response. In this edition, we examine both the impact of Basel 3 on corporate liquidity risk management and the new Standard & Poor’s corporate liquidity standards. Retail investors have also reacted to the significant increase in risk.

The success of recent hybrid issues is a reflection of investors’ new-found focus on stable income and capital preservation. We examine two hybrid case studies: Woolworths and Origin.

While capital structuring and M&A are on the backburner for many corporates, our research shows reasonable levels of M&A activity in the past year and an pportunity exists to optimise share buyback tactics.

Much has been made of the declining levels of Australian productivity.  Our economics group provides some cause for hope that this may just be a reflection of the special conditions created by the current mining boom.

Lastly, the carbon tax takes effect on 1 July 2012 and we take a look at the extensive range of assistance measures available to industry.

Download the full report to find out more.