“As a result, they are using their bank facilities to fund their operations.”
Mr Miller said the trend should reverse with the plateau in interest rates, but in the meantime companies are reluctant to take on expensive debt and are looking to shorter-term bank debt to give them relief. flexibility.
“It was a very interesting year with the changing outlook for interest rates and the cost of money, and then there were bouts of volatility where the markets just didn’t open,” he said. -he declares.
Businesses affected by COVID-19
“It will probably last a good 12 months and so it will be early next year when conditions become less volatile. Then you’ll see a lot more of that corporate debt obtained from the capital market and less from the banking market.
While the big four banks reported strong credit quality and mostly took over provisions for bad debts, Miller said companies that were struggling before the COVID-19 pandemic should find it more difficult to as liquidity declines.
“Now that we are coming out of the pandemic, businesses that were challenged or struggling before COVID are really challenged. Liquidity is less available and as rates rise, and more importantly, as trading conditions are hit by cost inflation, it really impacts businesses that were struggling before the inflationary metrics that we have “, did he declare.
But he said the overall outlook remained positive and more M&A activity should follow as good companies can still access credit relatively easily.
“It’s still quite positive in Australian business. There are still a lot of people who worry about the outlook, but they are still investing in their businesses, and we’ve seen that with Origin Energy. [takeover bid] there are still some interesting mergers and acquisitions that can be pursued,” Miller said.
“For the strongest companies with the strongest balance sheets, we are now entering an environment where valuations have come back, and the strongest companies can fund and raise capital in this environment and seize some of the opportunities that now have a sense because valuations have changed, and they have changed more than the cost of capital for the solid business has changed.
Miller also warned that while rates had risen rapidly, taking many companies by surprise, the cost of funds was normalizing after a period of exceptionally low yields.
“It’s not like we’re in the middle of a really crazy and very, very expensive level of debt. But it went faster than people thought in terms of getting back to the levels we saw today,” he said.
“I think we all expected these levels in the future, but probably not in the first 12 months post COVID. We would have thought more likely in the first two years after COVID.
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