CORPORATE treasuries are doing more to safeguard their liquid assets as liquidity becomes increasingly precious in today's tight credit environment, analysts say.
According to Fitch Ratings' treasury policies survey across Asia-Pacific, Europe and the Middle East in October, 59 per cent of respondents had, or planned to, review their liquid asset policies since the financial fallout deepened in the last few months.
Fifty per cent of respondents also relooked their banking and counterparty relationships.
In most reviews, companies typically tried to cut their risk exposure by dealing with more counterparties or investing only with those with an explicit guarantee.
'The survey clearly shows that the majority of corporate treasurers are all too aware of the dislocation in the bank and bond markets, and are taking what they consider to be appropriate steps to safeguard their liquid assets,' said senior director Alex Griffiths of Fitch's Corporate Group in London.
Companies' access to funding has been put in the spotlight since the financial turmoil erupted, and refinancing risk could remain a growing concern.
'The funding environment in the Asia-Pacific region has worsened noticeably in recent weeks as the global credit crisis continues to unfold,' said a Standard & Poor's report last week.
The agency estimates that US$368 billion of corporate debt that it rates in Asia will mature or become due for refinancing from the fourth quarter of this year to 2011.
In such times, Citi's financial strategy group is advising companies to maintain adequate liquidity from cash to committed bank lines.
'After years of paying little attention to balance sheet liquidity, equity investors are now paying a valuation premium for companies with the financial flexibility,' said its October report.
'Investors are not only focusing on the ability to survive a short-term liquidity freeze, but are also focusing more on long-term ability to fund growth organically, rather than being reliant on external sources of capital.'
And the source of capital matters. While firms can pre-emptively draw down on committed credit lines, the move could be seen as a sign of financial distress.
'Unless strictly necessary for short-term operating liquidity needs, this could trigger substantial adverse consequences from both rating agencies and equity markets (not to mention banks),' the report noted.
This article was first published in The Business Times on December 08, 2008.
