Almost half of Australian business leaders expect the cost of funding to increase over the next two to three years, according to a new global report by Allen & Overy.
The report, based on the responses from 1000 business leaders from international companies across 19 countries, revealed that 42 per cent of Australian businesses expect their need for finance to increase over the next two to three years, but only 17 per cent expect availability of funding to contract in that time.
"It's almost as if people are thinking that they're going to have to pay more but they're going to get it anyway," A&O banking and finance partner Chris Robertson told Lawyers Weekly.
"Where liquidity is tightening, that [17 per cent] was a little bit unusual to us, but I think it reflects an expectation that in extreme distress, the banks will roll over their loans to existing borrowers and not pull funding completely.
"It probably reflects the strength of relationships between the people that were spoken to in the survey with their financiers."
According to Robertson, the funding challenge currently affecting Australian businesses is a result of strong growth combined with market conditions increasing liquidity constraints, and the regulatory challenges facing financial institutions.
"This is driving organisations to look at alternate sources of funding," he said.
The survey revealed that Australian businesses are less inclined to use a wider variety of debt securities, with more than half preferring bank loans for their funding needs. In contrast, the survey demonstrated that global businesses are making more use of debt capital markets and high-yielding securities.
Indicating that this trend will continue in the coming years, 53 per cent of Australian businesses said they were likely to increase their reliance on bank loans, compared to only 42 per cent of global businesses, over the next five years.
"It's primarily a function of the market here in Australia," said Robertson. "Australia has never had the depth that offshore markets like the US or Europe have ... Historically, funding here, at least on the debt side, has been relatively dominated by the large domestic banks."
A&O equity capital markets partner Tony Sparks added that the Australian Securities and Investments Commission has tried to help facilitate the corporate bond market, but because of a lack of liquidity and Australia's history, this has not yet taken off.
"One of the challenges is ... ASIC is really looking for large, established corporations with good credit ratings to lead that market," said Sparks. "Whenever you limit the access to a particular type of funding source then you're going to limit its availability. It's almost a chicken and egg situation."
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