Small listed companies’ credit at risk
Lending costs for small and medium-sized listed companies look set to rise following a ruling by the High Court yesterday.
The court ruled that shareholders of insolvent miner Sons of Gwalia can claim compensation on equal footing with other creditors, increasing lending risk for banks.
“Small or mid-sized listed companies with lending requirements that are less attractive to credit providers will be the most vulnerable,” Sarah Percy-Dove, head of ANZ credit research, told SmartCompany this morning.
“Lenders may want a higher interest rate to compensate for the increased risk and there will be increasing request for security. So companies that don’t have hard assets to offer may have to pay more for the same funding.”
A senior bank executive says this will mean higher lending costs for many smaller listed companies.
“Your big companies – the BHPs – won’t have a problem, it will be the people who really need to borrow: the small and medium-sized businesses without huge reserves or assets that will really be the ones affected,” he says.
The case arose after shareholders claimed Sons of Gwalia did not comply with its continuous disclosure obligations.
Hall & Wilcox Lawyers partner Deborah Chew says the decision may create additional compliance costs for listed SMEs.
“Smaller listed companies may be more reluctant to disclose negative information because of the impact on their share price. That’s always a difficult call and it is something companies will now really have to scrutinize; for small listed companies it highlights how important it is always to be on top of these issues and to communicate promptly both the good and the bad.”
– Mike Preston
Bad signs from ALP
The decision by Labor’s industrial relations spokeswoman, Julia Gillard, to pull out of a key meeting with big business representatives is bad news for the business sector.
Reports today that Gillard had chosen to attend talks with management at the centre of a workplace dispute in Sydney rather than attend a Business Council of Australia dinner in Melbourne send out a message to business that Gillard could well be following the example of former Labor leader Mark Latham and shunning business.
Business will watch with interest as Labor leader Kevin Rudd, who will be attending the dinner, is expected to disclose Labor’s plans to ease taxes on foreign income earned by Australian companies and tax incentives to boost research and development.
– Amanda Gome
US consumer confidence is higher than it has been since 2002, the good news reinforced by the US Federal Reserve’s decision to keep interest rates steady at 5.25%.
In Australia, new Reserve Bank figures show credit growth eased in December, with private sector lending growing at 0.9%.and housing at 1%.
And Access Economics predicts the mining boom will cool down over the next three years due to falling prices for minerals such as zinc, nickel and copper.
– Mike Preston