NZX Top 50 companies well-placed as interest rates set to rise – report

nzx-top-50-companies-well-placed-as-interest-rates-set-to-rise-–-report

The country’s biggest businesses entered the Omicron outbreak with significant funding support from banks, but rising interest rates are expected to create a challenging environment in the year ahead, according to a new report.

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As was the case last year, most of the top 25 companies on the stock exchange had an unsecured debt facility, meaning they were able to access credit based solely on their creditworthiness. Photo: RNZ / Angus Dreaver

Law firm Chapman Tripp’s NZX Top 50 Funding Composition report for 2021 shows 47 of the companies analysed had bank debt available to them and 45 had drawn down on at least some of their commitments.

“Most of our corporates have spent quite a bit over the last couple of years looking at their balance sheets and making sure they are in a really strong position,” Chapman Tripp finance partner Cathryn Barber said.

“I think that will serve them well through this continued period of disruption.”

As was the case last year, most of the top 25 companies on the stock exchange had an unsecured debt facility, meaning they were able to access credit based solely on their creditworthiness and did not have to put up any assets as collateral.

There is a significant contrast with the second tier of companies on the NZX, with 80 percent of firms having a secured facility.

By comparison, the top 50 companies on the Australian Stock Exchange (ASX) all had debt available to them and had a higher proportion of firms with unsecured facilities.

ASX-listed companies also had a wider range of debt products available to them and were able to raise debt in a greater variety of currencies, the report said.

However, Barber said this was not a hindrance to NZX firms that had access to sufficient debt products locally.

The report noted that a significant number of firms reported rising finance costs for their bank debt in 2021.

With the Reserve Bank expected to keep lifting the official cash rate until 2023, the report said increasing lending costs, combined with rising inflation, may create a challenging business environment in the year ahead.

However, Barber said she thought NZX companies were in pretty good health to handle the changes.

“Companies will continue to keep an eye on their balance sheets and make sure they are in a strong position as we enter a period of a bit more uncertainty.”

Rising interest rates could also mean the retail bond market becomes more lucrative for companies because, until recently, interest rates had been so low it was difficult to attract interest from retail investors, Barber said.

Demand for green bonds was also expected to increase in the year ahead, Barber said, with companies from a wider range of sectors looking to take advantage of the sustainability-linked loans.

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