16 / 44
The corporate bond market is testimony, that capital market oriented corporations do make
maximum use, now, of such ultra-low long-term interest rates. BMW, as an example, issued a
1 billion Euro 10 year bond with an interest rate coupon of 1 % only.
Another advice to the treasurers: Learn, from what the treasurers of the best of the best
corporations are doing:
In Europe, and in the USA, the best of the best corporations have deleveraged, before the
great financial crisis in 2008 and 2009 started, and they have deleveraged more since then. In
fact, they are less leveraged and better financed, meaning more conservatively financed than
at any time since World War 2
nd
.
In fact, it is fair to say, that during the great financial crisis 2008 and 2009, the real economy
was the rock of stability in the sea of turmoil in the financial industry, and thanks to this solid
real economy the entire system was not on the brink of collapse.
Complementing the solidity of financing of the real economy is this:
Many corporations have learned the lesson, that it is good to have financing reserves. And not
just in the form of uncommitted or committed undrawn credit lines from banks, which may
fall into trouble and which banks may not honour the credit lines commitments.
Many corporations have learned, that the best precaution against the risk of refinancing in a
financial crisis situation, is to have sufficient unused cash on the shelf.
To give you an idea: The companies of the US S & P 500 index, excluding the 87 financials
companies, at the end of January 2015, collectively have cash on their balance sheets of 1430
billion US Dollar, tendency rising.
With interest rates ultra low, for loans taken up, and for cash invested, the negative spread
between costs of loans taken up and return on cash invested, the socalled cost of carry, is so
small nowadays, that it is almost irresponsible, not to have a reasonable box of idle cash on
hold as an insurance against difficult financing times.
Let me give you an example for this: The rating agencies, in order to maintain the ratings on
the Daimler Group, are requesting from the Daimler Group, that it can overcome twelve
months without going to the capital market and raising new funds. Daimler responded
positively to this request and is now holding roundabout 18 billion Euros of cash on its
balance sheet for this safety purpose, on a volume of annual group sales of 94 billion Euros.
That is, they have 20 % of annual turnover as cash, for safety purposes.
IGTA eJournal | Summer 2015 | 14