The depths of investors' pockets will soon be tested as the sharemarket prepares for what is likely to be wave of capital raisings to get listed companies through the financial impact of Covid-19.
The NZX has already cleared the way for companies to quickly and efficiently raise funds to sustain their businesses in the face of the pandemic.
Last week, NZX chief executive Mark Peterson said the measures were designed to address the "unprecedented impacts" arising from the spread of Covid-19.
"We want to be practical, and do everything we can to ensure that NZX-listed companies are able to access sufficient equity capital urgently, to strengthen businesses and save jobs," he said then.
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Among the most likely capital raising candidates are those mostly bigger New Zealand corporates which have accessed the US private placement debt (USPP) market.
This is a market where US non-bank institutional investors such as insurance companies and pension funds go to seek higher yields and where corporates seek competitive rates.
Strict covenant protection clauses are typically built in to each USPP agreement.
In 2018, Fletcher Building raised $750m in equity, partly to repay noteholders in the USPP market.
Alongside investors, banks and governments will be asked to step into the fray to help businesses get through.
Brokers Forsyth Barr said the impact of Covid-19 would be "far reaching and very
significant" across the companies that it covers.
"While several may benefit, most will be adversely impacted, some materially so, and thus require recapitalisation to survive," Forsyth Barr said in a research note.
"The near term outlook is extremely uncertain and while market valuations have been severely hit for many companies, we have a preference for higher quality assets with sustainable cash flows that should trade on a largely business-as-usual track through these challenging times," Forsyth Barr said.
"In contrast, companies most at risk include (1) those that have direct exposure to travel and tourism, (2) those that will be impacted by changing consumer behaviour (given social distancing and lockdown), and (3) those that are cyclical as a result of the impending domestic and global recession."
Paul Draffin, Melbourne-based analytical manager of corporate ratings at S&P Global Ratings, said investor appetite for debt through capital market issuance had declined significantly in recent weeks, particularly for sub-investment-grade companies.
"Corporates are turning to banks and other sources of funding for additional liquidity," Draffin said.
"We expect many companies to reduce or cancel dividends, or to raise fresh equity to bolster cash reserves/liquidity," he said.
Shane Solly, portfolio manager at Harbour Asset Management, said the risk would come when a company's earnings had collapsed due to Covid-19 compliance actions, a breach of debt covenants, or when debt was due for refinancing.
"This is a particular issue for higher indebted cyclical companies," he said.
"While the local trading banks are more likely to support businesses by taking a longer-term view on covenant breaches or on rolling over existing facilities, US private placement markets may be difficult."
Several larger New Zealand companies have accessed debt from the USPP market over the last few years, including some of the companies that have recently cut earnings forecasts and guidance.
Rickey Ward, New Zealand equity manager at JB Were, said much would come down to the banks and the extent to which they were prepared to look the other way when corporates were in breach of their banking covenants.
He said the USPP market was "not overly accommodating" if there was a breach of any metric.
Ward noted that a number of companies had already withdrawn their dividend plans.
"When you get into that predicament, it's normally a signal that they probably should go and raise equity.
"Whether corporates will have the appetite to go and do it after their share prices have fallen so much - that's the great unknown," he said.
"A few of them will lean on the banks or the Government to try and work their way out of what could be a three, six or 12-month journey back to get themselves looking remotely normal," he said.
"Some desperately need to raise equity and they should just go and do it."
But Ward said there was plenty of cash in the system, thanks mostly to the measures taken as a result of the 2008-9 Global Financial Crisis.
"There is plenty of cash in the system - there are plenty of large cash holdings within funds and investment accounts.
"And given the market has fallen quite significantly - they are waiting for opportunities."
Ward said he was confident the majority of New Zealand corporates would see their way through the outbreak, and the likely economic recession resulting from it.
"But there are some who might not - not for some time."