According to the 2024 Corporate Debt and Treasury Report from Herbert Smith Freehills, corporates now accept that some level of continued business interruption has become normalised. Many respondents in the report expressed confidence in the ability of their organisations to cope with these challenges and to continue to manage systemic risk and uncertainty.
For some respondents, the reality of managing continued high interest rates and persistent supply chain disruptions for a prolonged period has led them to build wider risk management processes into their business culture.
Speaking at this year’s ACT Annual Conference, Chelsea Fish, a senior associate at HSF, said that many corporates had now “internalised” increasing risk management requirements, while at the same time becoming “more agile”.
“People are looking forward and making sure that they’re able to adapt to whether it’s the next black swan event like COVID or whether it’s the continued general disruption such as supply chain inflation,” she said.
However, a slowdown in mergers and acquisition activity had altered corporate behaviour. According to Oliver Henderson, a senior associate in HSF’s banking finance team, “corporates are perhaps seeking to preserve their cash and operating in a slightly more cautious environment than previously”.
Henderson added that in the past, corporates might have expected to see debt markets closed by some of the geopolitical events, but now that appears not to be the case. “If you think back a few years, markets would’ve been shut by the conflicts, especially at the outbreak of the conflicts that we have seen in the Middle East and Ukraine,” he said. “Whereas now there may be some wobbles, some minor pricing fluctuations, but essentially the markets are open and liquidity is there for corporates as and when they need it.”
Fish suggested that they were seeing greater selectivity from the banks in terms of who they provide finance to. “It's probably less [of an issue] for the investment grade corporates, but banks are perhaps being more selective,” she said. “There is a lot of conversation at the moment about SMEs finding it harder to access funding, and that indirectly has an influence or an impact on the investment grade companies, as a lot of those SMEs are in the supply chain somewhere.”
Henderson agreed, warning treasurers about the need to maintain good relationships with their banks and other investors. “This highlights the need for treasurers to be constantly talking to their investor base because the worst-case scenario is that you launch a refinancing or are raising finance for new projects and it turns out that one of your lenders who you’re banking on to provide credit isn’t there for you anymore. Continuous conversations with your investors are critical.”
The report also indicated that ESG concerns remained important for finance providers and corporates alike. “ESG is not going away,” Henderson said. “And as a result, there’s still wide appetite for ESG linked debt, whether that’s SSLs, green bonds or similar. But even if corporates aren’t interested in issuing an ESG-linked product, we're finding that ESG metrics of some sort are increasingly part the credit decision that investors are making when determining whether or not they're going to lend.”
Philip Smith is editor of The Treasurer
The 2024 Corporate Debt and Treasury Report is produced by Herbert Smith Freehills in association with the ACT. Download the survey here.
The ACT Annual Conference 2025 will be held at ICC Wales 20-21 May. Register your interest.