Lack of Debt and Equity brings Opportunities

"While it does seem like the credit markets are finally starting to ease up, the criteria for borrowing money is still tough," says Global Pacific's John Paine.

The recurring theme in my last few newsletters has been - “Where’s the money”, says Global Pacific’s John Paine.

While it does seem like the credit markets are finally starting to ease up, the criteria for borrowing money is still tough. And banks continue to not only be hard on new clients but on existing ones as well. Sadly borrowers who have had all their finance with one bank are being squeezed to reduce their exposure. And selling down assets doesn’t always help the borrower as the equity released is sucked up by the bank.

Refinancing banks is a popular pastime now and we’ve been successful with most of those we have taken on. A third party negotiator can be quite handy at those times.

There are lenders out there including non-bank financiers who survived the financial crisis and new ones are starting to appear, including private lenders. I’ve referred to these in previous newsletters like the April GLOBAL UPDATE – to read click here

Equity participation and joint ventures

Last weekend there were a few newspaper articles on the lack of money here including two in the Herald “Surviving when the money dries up” and “Get used to foreign investors”. The first article points to the lack of cash and inability to access capital here, which gives foreign investors - especially those from Asia where the money is now - the opportunity to take stakes in New Zealand business. Click here to read

The second – quoting Westpac’s David McLean – says we have only ourselves to blame because “We haven’t got the money to put up ourselves because we haven’t saved it”. He blames the lack of interest in our sharemarket, a very important source of equity finance, on a lack of flow of funds into superannuation.  Click here to read

And in the Sunday Star Times Rod Oram says we have to make a radical change in the way we do business. He quotes the examples of the Singapore company Olam making a full bid for New Zealand Farming Systems Uruguay and China’s First Bright taking 51% of the downstream processing and marketing operations of Synlait “one of our most ambitious dairy companies”.

In Rod’s view these are typical of “the classic trap that bedevils our entire primary sector. We are good at growing and processing, but we have largely shut ourselves out of distribution, selling and downstream value creation. If you look at the entire value chain of our agricultural products, the bulk of profits are captured by the likes of supermarkets, distributors and end users overseas.”  To read Rod’s article click here 

These articles do refer to larger projects, but there are opportunities being missed in smaller ones too. And, as hinted in my last newsletter, new solutions to raise money are becoming available. It just takes a bit of lateral thinking.

Let’s look at some of them:

·         Growing businesses strapped by lack of working capital. This can be resolved through bank and non-bank lenders – and by equity participation. There are plenty of people out there looking to invest in good businesses.

·         Strong clients with excellent revenue generating properties looking for investors to reduce bank debt and improve dividend streams.

·         Buyers or owners of properties looking to add value by re-furbishing and/or re-tenanting. Banks reluctant to lend as this falls into “development” territory but happy to re-finance when completed. Great opportunity for investor or joint venture partner.

·         True equity participation opportunities in established businesses looking to expand, or in completed property developments with established tenancies.

·         Almost completed developments requiring short term funds to finish for bank takeout.

·         Larger loans just outside tough bank criteria. Too big for most non-bank financiers but we have private lenders interested in these.

·         Loans for new borrowers that banks are neglecting by preferring existing customers.

We can structure "joint venture" deals where the incoming investor is protected from previous liabilities incurred by the incumbents or takes a position in preference to them, says Paine.

Global View: is an email newsletter reporting on the New Zealand Economy with a bias towards how it affects the property and business finance markets.  It is a regular commentary delivered to you by email every month.

Disclaimer: Please note that all opinions and statements expressed in this email are indicative of our opinion only.  Both the author and Global Pacific Corporation Limited issue no invitation to rely on the information contained in this email and intend by this statement to exclude liability for any such opinion and statement.

John Paine

Global Pacific Corporation Limited

112 Gladstone Road, Parnell,

P O Box 3229, Auckland, New Zealand

Phone +64 9 303 3700, Fax +64 9 303 3031

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