FDs turn to debt as dip in valuations

Leading CFOs think that equity markets value their companies too cheaply,
forcing them to approach banks rather than issue stock in return for finance.

study on corporate financial attitudes shows that 63% of the CFOs questioned
believe their companies are undervalued.

Ian Stewart, associate director of Deloitte research, said: ‘Many CFOs think
the equity market undervalues their business and this helps explain the
unattractiveness of equity finance for many companies.’

Less than one-quarter of the 51 CFOs polled rated equity as an attractive
source of finance, despite the recent strength of the FTSE.

Deloitte found that many CFOs were still approaching the debt markets, but
the availability of credit is seen as less of a problem than the cost of the

The study showed that FDs see their cost of capital as having risen less than
short-term market interest rates. Deloitte said that three-month inter-bank
interest rates were above the average for the past 10 years, while UK corporate
bond yields are below their 10-year average.

Stewart said: ‘CFOs seem confident about being able to borrow, although it
may be at higher rates’.

The survey backed up his assessment, with 56% of respondents planning to
raise their level of gearing during the next year, despite the tougher credit
conditions, and 72% saying they would raise new debt or refresh their banking

Margaret Ewing, Deloitte’s vice-chairman, urged finance bosses to consider
the long term. ‘The big question for the economy is whether the supply of bank
capital is there to meet this demand. In these financial conditions, the
multiple demands and pressure on CFOs are significant and they will be seeking
to neutralise their companies from the impact of the credit market turmoil,’ she

Ewing forecast an increased focus on cash, cost and risk management in the
next year. Deloitte’s CFO expert emphasised the importance of finance heads
considering how the current credit issues and the possible slow down in economic
growth may impact not only their own companies, but also those with whom they do

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