February 05, 2009
To : All Shareholders
There are rumours circulating in the market which, if true, portend increased funding difficulties ahead for corporate borrowers who have not done all they can to match their funding requirements.
It is difficult to get a clear picture of what is happening inside the banks and the impact on their balance sheets, so far, from this economic crisis. You can be sure, however, that no matter how bad it is it is going to get worse. There will be a very high rate of corporate bankruptcy, especially in the construction and ancillary activities, and defaults on personal debt, already at seriously high levels, will go on mounting. I can foresee a rocky time ahead, especially for the smaller players in the market, and perhaps some forced mergers to bury the problems, much as we experienced in the 1980’s.
There is a lot of denial in business circles, people do not yet realize or prefer to close their eyes to the reality of what is happening, but we are making all the right moves. Now, I suggest you all take a closer look at your Sources and Applications of Funds projections --- try to project your positions over the next 2-3 years, keep up the pressure on supplier credit on both sides of the balance sheet, and match your funding requirements while there are still lines available at moderate rates. In the past, I have been a proponent of unstructured credit, i.e. overdraft lines, for a portion of our external borrowing, because they were to all intents and purposes evergreen credit and they were suited to the times, but times have changed and I think that it will be a good move to lock in those unstructured facilities at fixed rates, for longer terms to match our cash flows. Obviously, rates will continue going up so we have the chance to contain costs as well as to assure availability of funds. If you need help with this exercise I can ask Asif to make our expertise available.