Treasury Today Country Profiles in association with Citi

A new take on corporate lending

Coins and plant being watered for growth

Cbus, the Australian building industry super fund, has announced plans to begin offering finance to corporates. Here, we sit down with Rob Leck, Manager Debt and Quantitative Solutions at Cbus to find out why.

With the banking sectors’ ability to lend potentially coming under ever more pressure in the next few years, corporates in Asia Pacific, many of whom rely heavily on this form of financing, may soon have to consider other funding options.

Although this might seem like a daunting task at first for treasurers, the good news is that there are increasingly more alternative funding channels opening up. The region’s maturing capital markets and its nascent peer-to-peer lending industry are just two examples of this.

But one funding source that might not yet have been given much thought, and that may prove to be a favourable option, is the asset management industry.

Meeting requirements

The Australian superannuation fund, Cbus, which manages over $34bn for its 732,000 investors, is one of the first asset managers to publicly state its intentions to enter this line of business.

“Cbus is looking at the corporate lending space and aims to become a long-term provider of capital to corporate institutions,” says Rob Leck, Manager Debt and Quantitative Solutions at Cbus. “We do not have the same constraints as the banking sector in regard to the provision of long-term capital and as such are potentially able to offer longer term and more stable debt facilities that more closely match the requirements of corporates.”

This strategy also seemingly matches the needs of Cbus. “Our pool of capital is large and increasingly growing, requiring us to find new ways to invest this,” says Leck. “Investing in strong and stable corporates seems like a natural fit.”

High-quality lending

As yet, Cbus has not defined what corporates in particular it will be targeting, simply suggesting that these will be “high quality companies”.

“The size or type of company is merely one factor that is assessed when a credit review of a new debt facility is undertaken,” outlines Leck. “Ultimately, all funding opportunities will be assessed on a risk/return basis, taking into account the levels of return and the ability of the borrower to repay.”

Indeed, the risks around non-payment will be a critical factor of Cbus’ credit review process. To mitigate any risk, the fund will look to conduct lending on a secured as well as an unsecured basis. “In cases where secured lending against an asset made economic sense, we would incorporate this charge over the asset into the credit review process,” adds Leck.

Building relationships

On the investment side of the corporate treasurers’ work, the close relationship that many companies in APAC have with their banking partners has somewhat stunted the growth of alternatives such as money market funds.

And this relationship factor permeates to the funding side of the business as well. Banks will often lend at an unprofitable rate, using this as a loss-leader in an effort to maintain the relationship with clients and also attempt to capture more profitable areas of their business.

With that being the case, it can be difficult for new players to penetrate the market. Cbus, however, are not positioning themselves as a rival to the banks and instead want to work alongside them, whilst also building their own relationships with corporates. “We envisage that some corporates may choose a lending facility with Cbus whilst still using the traditional banking channels for their other services,” notes Leck.

The way ahead

Although Cbus is currently still developing its lending strategy, which will need to be approved by the fund’s investment committee, this certainly seems to be the direction the fund wishes to head in. “The constraints upon banks will continue to tighten and as such there will continue to be a material need for financing channels outside of the traditional sources,” says Leck. “Cbus sees this trend as a long-term move towards an alignment between the investment needs of the capital owners and the financing needs of the capital users.”