You Can Run But You Can’t Hide

Finance chiefs around the world agree that credit is hard to come by and there is little relief in sight.

The time may also be right to reach out to smaller banks. “Why leave your cash-management business with a large bank that won’t lend you money, when there are smaller players that can string together a day-to-day operating line for you?” asks Charlene Davidson, senior managing director at Mc­Gladrey Capital Markets, a boutique investment bank. “Your cost of borrowing has skyrocketed, the lender doesn’t seem to be able to make timely decisions, the amount of documentation and due diligence to get a loan are onerous. It’s time to uncover opportunities elsewhere.” Davidson cites several regional banks, including Wells Fargo, Comerica and US Bancorp, as less affected by the subprime crisis and “still having their wits about them.”

Meanwhile in Asia…
Michael Austin, CFO of Top Form International, the world’s largest manufacturer of bras, takes a document from his desk. “This is the first time we’ve received something like this,” he says. It’s an addendum to the annual renewal form for a finance line with an international bank. “Here is some information they now require.” He takes a breath. “Sales figures, updated management accounts, age analysis of trade debtors, orders on hand for the current year, average monthly wages, a list of our raw-materials suppliers, days of credit period for our largest suppliers. They also want to know who our other bankers are and what pricing they’re offering.” He laughs at that last item, but he would be the first to agree that the banking situation in Asia is anything but funny. From Hong Kong, where Top Form is based, to Australia, Japan and China, banks are tightening their lending practices.

“Financing has become very hard here,” says Arvind Chandak, president of Aurobindo Pharma’s China operations. The $700m Indian-owned drugmaker has a $100m investment in a new plant in Datong, in China’s Shanxi province, and wants to increase capacity. But it is having trouble securing the 200m yuan (€23m) of financing the project requires, not to mention the working-capital lines it needs for its current plant. A combination of factors stand in the way, including local bank reluctance to lend to exporters, the difficulty of importing a large sum of foreign currency to convert into yuan (China has strict capital controls), and local rules in Datong that make it difficult for a corporate borrower to raise more than 100m yuan from a local bank.

Aurobindo is not alone. At the Philippines operation of a European-owned garment exporter, the controller reports that the company can no longer get working-capital loans from the local banks it has long relied on. The banks keep asking for more documentation from the company but don’t extend credit. “It’s as if the bank doesn’t want to release the loans,” he says. To get by, the company is slowing down payments to its own suppliers. It has also secured some short-term loans from what the controller will only describe as “private individuals.”

“The discussions in credit committees are getting tougher,” says Matthew Austen, a partner at Oliver Wyman’s corporate and institutional banking practice. “Covenants might well get tougher. Banks are looking at ways they can alter the terms and conditions and covenants to wrap the loans in protective padding.”

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