Good morning, it’s Paul here with the SCVR for Weds.
We’re seeing the usual flow of money from companies to shareholders reverse at the moment. So dividends widely being suspended, and placings come thick amp; fast (e.g. Joules, WH Smith, Asos). My worry is that entire sectors need to refinance, and I wonder how much appetite for funding so many companies that shareholders will have? All the focus on efficient balance sheets, and high ROCE, has turned out to be mistaken – it actually left many companies dangerously exposed, with no reserves to tide them over something unexpected. Maybe attitudes might change once this crisis is over?
From what I’m observing, there’s a strong case for arranging “rainy day” bank facilities – i.e. having a big bank borrowing facility dormant, then drawing it down in full to provide cash reserves in a crisis. Although there’s a cost to that, as banks charge hefty arrangement fees as the price of tying up some of their reserves. After all, we need to think in terms of the possibility of coronavirus coming back again after this initial crisis. Hopefully by then, if a second wave does hit us, there might at least be some kind of…
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