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Volatile markets are an opportunity, not a threat
An uncertain political situation and temperamental market sees many housing associations adopt a cautious approach to funding. But as Olu Oloruntuyi argues, this is the wrong approach
During times of uncertainty, we see a shift in the market. Many housing associations start battening down the hatches.
They decide to sit tight, holding back on seeking investment in a bid to outwit the market, waiting for a better deal or for the market to stabilise. But that’s a dangerous strategy.
The market can take months or even years to stabilise, and when it does competition will be stronger than ever. In my experience, a volatile market should be viewed as an opportunity to ensure we can continue to build more homes and improve our customers’ well-being.
When raising funding on the capital market, timing is important. The interest rates businesses pay lenders is based on gilt yields. Gilts are bonds issued by the government when it wants to raise money. Gilt rates are determined by supply and demand as well as political events, such as Brexit.
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So in times of political uncertainty, gilt yields move up and down continuously, therefore so do interest rates. Throughout 2019, UK gilts have been predictably unpredictable.
In the lead up to securing funding we – like many other treasury and finances teams across the country – spend time watching the gilt rates move. This means we can assess how attractive the rates are by comparing them with our business plan. If we’re happy then we transact quickly.
To do this, you must be agile. We take a different approach to the traditional investment process to ensure our agility. A traditional process would usually include a roadshow of sales pitches to potential investors, or a launch of a syndicate to encourage multiple investors to join together to provide the full funding.
Our strategy is to be transaction ready. This means we nurture relationships with potential investors well in advance of funding. We want investors to know all about us and feel confident in our business before we seek funding. We can then react quickly to lock in an investment that is right for us.
Securing funding for the future not the present is also imperative in a volatile market. It’s more effective to secure funding when you don’t need the money.
Being organised and looking ahead puts you in the driver’s seat. It gives you the opportunity to negotiate harder and even walk away if conditions aren’t right for your business.
We’ve had a great deal of success with this. We have a fully funded development programme until the end of 2021, so we don’t need to look at funding until the end of 2020.
However, we’ve monitored the market and identified very attractive conditions that are right for our business.
“Securing funding for the future not the present is imperative in a volatile market”
By monitoring the gilt yields far in advance we’ve been able to take advantage of current low rates and secured £210m from investors through private placements. The rates we locked in are well below 3% for an average term of 29.6 years. As we don’t need all this money now, we’ve deferred the drawdown on this.
To conclude, a volatile market is something to take advantage of, not to fear. Don’t delay a transaction or halt seeking an investment to wait for a better rate – that’s a dangerous game.
Look at your finance and treasury strategy, get organised and utilise this period of instability to secure the best option for your business.
Olu Oloruntuyi, group treasurer, Vivid
