The Coronavirus (COVID-19) pandemic has highlighted the importance of managing a company’s non-financial risk (environmental, social and governance (ESG) factors). The pandemic has also shown how having solid policies (e.g. business continuity, disaster management, employee benefits, paid sick leave, work from home, etc.) can benefit a company in times like these.
This pandemic is having an unprecedented impact on the global economy. Companies are having to shut down to try and curb the infection rates. Some companies are still operating albeit on a limited and restricted basis. As a result, revenues and cashflow will be negatively affected. Most companies are not yet able to quantify the extent and duration of the COVID-19 effect on their businesses.
How is Ashburton Investments managing its credit portfolio?
As the custodian of our clients’ investments, Ashburton Investments has been looking at strategies to limit the economic damage from the pandemic, while protecting portfolio values. We are working with our investee companies to manage and minimise risks.
Sectors and companies will be affected differently. For example, the clothing retail sector will most probably be hit harder that the food retail sector because food retailers are still operating but clothing retailers are not. The hospitality and entertainment sector will also be hit harder than the health and medical sectors. We have therefore applied a customised approach when considering the specifics of each sector and company.
Some of the strategies that we have implemented include:
1. Granting interest and capital payment holidays
2. Waiving or relaxing covenants
3. Extending debt maturities
It is important that companies can weather this storm. Part of weathering the storm involves a collaboration between companies and their funders/investors. The above are interim measures and we will reassess on a continuous basis.
Will it be business as usual after COVID-19?
The companies that have managed the interlink between financial, social and environmental risk well, will likely bounce back quicker than companies that did not manage this risk well.
Some companies’ responses to the impact of the virus have been commendable (e.g. companies setting up funds to help SMMEs, executives taking pay cuts, etc.) while other companies had to unfortunately lay off employees until the storm is over. Many have responded responsibly by trying to protect capital through delaying or cancelling dividend payments. It is reported that Whole Foods, a grocery chain retailer in the United States, reacted by asking employees who have leave days, to donate those leave days to employees who have contracted Coronavirus.
The rate of infections and the size of this crisis has left all of us reflecting on our approach to investments. So, it is important for us to assess the way in which we respond to this crisis as it will go a long way towards driving an integrated and sustainable approach to investment management.