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

The country’s largest companies entered the Omicron outbreak with significant financial support from banks, but rising interest rates are expected to create a challenging environment in the coming year, according to a new report.

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

Law firm Chapman Tripp’s NZX Top 50 Funding Composition report for 2021 shows that 47 of the companies analyzed had bank debt at their disposal and 45 had drawn on at least some of their liabilities.

“Most of our businesses have spent quite a bit of time over the past two years reviewing their balance sheets and making sure they’re in a really strong position,” said Cathryn Barber, finance partner at Chapman Tripp.

“I think it will serve them well during this continued period of disruption.”

As was the case last year, most of the top 25 listed companies had an unsecured credit facility, meaning they were able to access credit based solely on their creditworthiness and did not not had to provide assets as collateral.

There is a significant contrast to the second tier of businesses on the NZX, with 80% of businesses having a secure installation.

By comparison, the top 50 companies on the Australian Stock Exchange (ASX) all had debt at their disposal and had a higher proportion of companies with unsecured facilities.

ASX-listed companies also had a wider range of debt products and were able to take on debt in a wider variety of currencies, according to the report.

However, Barber said that was not a barrier for NZX businesses that had access to enough debt products locally.

The report notes that a significant number of companies reported an increase in the financial costs of their bank debt in 2021.

While the Reserve Bank is expected to continue to raise the official exchange rate through 2023, the report says rising lending costs, combined with rising inflation, could create a challenging business environment over the course of the year to come.

However, Barber said she believes NZX companies are healthy enough to handle the changes.

“Companies will continue to monitor their balance sheets and ensure they are in a strong position as we enter somewhat more uncertain times.”

Rising interest rates could also mean that the retail bond market is becoming more lucrative for businesses because, until recently, interest rates were so low that it was difficult to attract interest from retail investors, Barber said.

Demand for green bonds is also expected to increase in the coming year, Barber said, with companies across a wider range of sectors looking to take advantage of sustainability-linked lending.

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