The country's biggest listed companies were quick to take advantage of low interest rates to counter the impact of the Covid-19 pandemic, but in many cases did not end up needing the extra security, according to a new report.
Cathryn Barber, Chapman Tripp partner and head of the finance practice. Photo: Supplied
Chapman Tripp's NZX Top 50 Funding Composition report for 2020 shows a clear contrast between the credit ratings of the top 25 companies versus the next 25.
Those in the top tier enjoyed a superior credit rating, with 14 of the top 25 having unsecured debt facilities in place, compared with just two in the second tier.
Chapman Tripp partner and head of the finance practice Cathryn Barber said most of the largest companies opted to increase or extend their funding arrangements to raise equity or to pay down debt as part of their Covid response.
For some it was a strategic decision to increase credit facilities, although it was not always a straightforward exercise.
"Entities with a range of creditors had more difficulty as getting a majority to agree to the same change of terms was often arduous and expensive."
The analysis also found the retail bond market is slow, with no new issues in the first half of 2020, although that market was expected to pick up.
"We anticipate that there will be an increased appetite for New Zealand retail bonds to lock in longer-term debt." Barber said.
"We also expect that green and socially responsible financing will continue its growth trajectory."
The report found most of the top companies relied on banks as their primary source of debt, while smaller businesses had more diverse funding sources.
Barber said the New Zealand economy had performed relatively well during the pandemic and business confidence is rising in all but the most affected sectors.
"But we expect that some uncertainty will remain until vaccination has delivered herd immunity to us and to our major trading partners and until the borders are open," she said.
"Most of the waivers obtained in the initial lockdown last year have now expired and companies are considering whether their funding mix is appropriate based on their experiences last year."