Corporate Finance 2013 : Lessons learnt

Credit Rating: Do or die but maintain it

The year saw difficult time with liquidity almost drained out, financial performances dwindling, foreign money out of sight, existing lenders shying away, and all this making the job of Finance Managers worst. The existing lenders were shying away due to decline in performance or instances of occasional delay in payments due to increasing liquidity crunch. The Panacea that worked for the finance team was a good credit rating. They realized the power of a good credit rating which helped them in convincing new lenders on short notice for taking fresh exposures thereby facilitating liquidity. These managers would now swear that a good credit rating not only reflects a good health BUT ALSO HELPS IN MAINTAINING A GOOD HEALTH so do or die but maintain it otherwise ICU would be only resort !!    

Don’t repeat the mistake: Using short term for long term

Many corporates which resorted to short term funding on roll over basis for funding their long term plans discovered that this wheel may not be running for ever. And if it stops when the fuel is not there in the market then the journey may be over! Many finance managers had resorted to short term to take the advantage of low interest rates. During the year, Lenders called off these short term lines and corporate found it difficult to tie up the long term funding in the time of turmoil. The year 2013 taught to finance managers the very essence of timely tie up of long term funds and not to interchange it with short term !!

Videshi Banks: Friends of good times

Indian corporates were already finding it difficult to raise finance due to falling performances. In this difficult time, their existing foreign lenders got the message from their Head Quarters in US and Europe to reduce exposure in emerging markets including India. So, the existing funding lines to the corporates in India were put on run off basis by these lenders which acted as last nail in the coffin. In this turbulent time, when the corporates needed their lenders to provide more support, the foreign lenders showed door to these corporates. The public sector banks supported most of the suitable corporates wherever possible to make them float successfully.

Forex Hedging: It’s not so simple

Gone are the days when simple forex hedging policies of 50 per cent or some per cent of the foreign exchange exposure could help corporates in managing forex exposure. During 2013, the profits of the companies (specially the mid and small size companies) turned into losses due to huge volatility in exchange rates specially the Dollar-INR. The year 2013 taught to take forex most seriously, simple forward bookings policies does not work anymore, advisory of forex professional firms essential, and DYNAMIC FOREX MANAGEMENT POLICIES being the need of the hour.

Banking partners: few are not good

Corporate’s in relationships with few banks learnt that in difficult time everyone has a limitation on walking that extra mile but if everyone walks a bit, then its not difficult to tide over the situation. If one of your banking partners is not willing, you have other ready relationships nurtured slowly over the years to help you. The year 2013 taught that in good times its you who dictate but in bad times it’s the relationships which works and relationship cannot be created overnight. So its prudent to have a good number of banking/lenders relationships.

Business Diversification: Helps to float in rough weathers

Company’s diversified in two or three unrelated segments were in a comfortable position since downturn in one segment was balanced by better performance of other segments. So, its better to keep your business diversified as it helps to keep you floating in rough weathers.

Financing: You need soldiers and captains with War experience

Company’s enjoying good reputation, dictating terms to lenders were suddenly in a difficult position due to dwindling performance resulting in defaults on some occasions. Worst was the finance teams & promoters not having experience/in depth knowledge of managing in times of crisis. The year 2013 taught that it is prudent to have people at senior and middle management level with experience of working in such difficult times with legal and practical knowledge (RESTRUCTURING, STAY ORDERS, REVERSING TAX DEPARTMENT NOTICES ETC.) for all the required timely actions (BECAUSE ACTION MUST BE TAKEN BEFORE THE DAMAGE IS CAUSED).

Tie up > Interest Rate & other terms

When everything is good, you dictate to avail the loan, but 2013 taught that for mid and small size companies with credit rating of ‘A plus’ and below, its better to take disbursements as soon as you have tie up of funds in place, AND LATER NEGOTIATE ON TERMS, since there is nothing more important than having access to funds, and nobody knows when the changes in market conditions would change the policies of the lenders for increasing exposures !!

-Wish you all a very Happy and Prosperous New Year 2014