04/08/2020 | Press release | Distributed by Public on 04/07/2020 17:02
The global impact of COVID-19 continues to have an unprecedented effect on businesses and communities in Australia, and right around the world.
The sheer number of individuals directly impacted by the virus continues to grow every hour. For up to the minute reliable global data on the spread of the virus, visit the Johns Hopkins University Coronavirus Resource Centre.
Impact of COVID-19 on Insurance
The unprecedented coronavirus (COVID-19) pandemic has impacted every major economy and industry, and the local and global insurance market is no exception. The immediate challenges associated with the pandemic and the resultant economic downturn are likely to bring lasting effects to the insurance marketplace. Insurers are reviewing the coverage provided under their range of products and governments are introducing new laws which directly and indirectly impact risk and insurance. The situation is constantly evolving and Willis Towers Watson is collaborating globally to consider the insurance implications. Please click one of the following links for a specific COVID-19 update: Mergers & Acquisitions Insurance, Cyber Insurance, Management Liability and Directors' & Officers' Liability, Professional Liability and Medical Malpractice and Employment Practices Liability.
The impact of COVID-19 and the inherent uncertainty
L.E.K Consulting: An expected credit crunch is believed to emerge for corporate debt, limiting opportunities for leveraged transactions during the next few weeks particularly in the mid and large-cap space. During this time PE firms must focus on priority actions required to support and manage their portfolio companies. Communications and liquidity ('13 week cash flows') are the two short term priorities, including proactive engagement with stakeholders. In the medium term (3-9 months), restructuring and distressed investment opportunities are expected to emerge; while moving to the long term, as the situation normalises private capital will need to a) invest behind likely changes to business models and supply chains b) be cognisant of likely increases in inflation and c) adjust to a moderation of sales multiples, read more.
Private capital firms are already planning for a potential market correction and the opportunities it might afford
EY: As consensus grows regarding the lateness of the current macro cycle, PE firms are already planning for a potential market correction and the opportunities it might afford. With valuations for PE deals exceeding the peak of the Great Financial Crisis for the last several years, the investment decision itself has become more comprehensive in its risk considerations, read more.
6 Key Actions for PE Fund Managers
MinterEllison: has outlined six steps for fund managers to take into account during the COVID-19 pandemic. From considering equity funding, recapitalisation and capital calls, to utilising credit lines and draw down facilities. The steps also outlines a number of tax relief measures, the consideration of rent relief, understanding safe harbour and a review of staffing arrangements and employer obligations, read more.
Open access to select supply chain technology
SAP: is currently offering a suite of products to assist businesses facing the unprecedented challenges right now as the impact on the global economy continues. Among the products available are Remote Work Pulse, facilitating organisations supporting their employees with new work environments; SAP Ariba Discovery, helping buyers and suppliers connect quickly and SAP Litmos, inclusive of video based courses designed to help establish best practices for remote work, read more.
Guidance for employers on privacy obligations
Gilbert and Tobin: has released an overview of the statement by the Office of the Australian Information Commissioner (OAIC) outlining privacy guidelines that assist government agencies and private sector employers, on how to keep workplaces safe and handle personal information appropriately as part of the COVID-19 response, read more.
Cue manufactures scrubs for St Vincents
Family-owned Australian fashion house, Cue Clothing Company, has repurposed its Australian manufacturing capability in Western Sydney to produce protective gear for frontline staff at St Vincents Hospital in Sydney. A shortage of vital protective garments for medical staff is amongst the many unprecedented challenges the medical community has faced since the advent of the COVID-19 pandemic.
Cue, which has closed about 70 of its stand-alone stores as a result of the pandemic, will leverage its local work wear manufacturing facility to ensure staff at St Vincents have clean scrubs every day. The company sees making scrubs as an extension of its mission, which is to use its resources to help those in need.
Why COVID-19 Means Investors Should Expect Lower Capital Calls and Distributions in 2020
Preqin: With public markets down more than ~25% in light of the coronavirus, institutional private capital investors need to consider their liquidity. With prior commitments to private fund vehicles, will investors be able to meet capital calls while maintaining adequate levels of liquidity? How will GPs adjust their capital calls and distributions in light of the crisis?
Working with US-based risk management firm FRG, Preqin analyzed the impact of a recession triggered by COVID-19 on capital calls, distributions, and net cash flows. To model the impact, FRG created a Pandemic Scenario, which is compared to baseline figures. The Pandemic Scenario assumes a 25% contraction in US real GDP in Q2 2020, followed by a sharp rebound through 2020, read more.
Banks to Help Commercial Landlords Who Help Tenants through COVID-19
Australia's banks will extend the six month deferral of loans to 30,000 more businesses across the country. This support now extends to 98% of all businesses with a loan from an Australian bank. Businesses with total business loan facilities of up to $10 million (up from the $3 million small business threshold) will now be able to defer repayments for loans attached to their business for six months, read more.
Watching the markets from the eye of the storm: A weathervane for the next gust
Hamilton Lane: Some of the realisation of potential damage is beginning to happen. The impact will be lagged as 31/3 results won't be delivered until May, but there will begin to be some perspective when looking at public markets and with some initial assessments of how sectors and geographies have done.
The interesting thing, as always happens with significant inflection points in the markets, is there will be a better idea when the 31/3 valuations come out whether they are an odd moment in time or an actual portrayal of value, read more
ACCC guidance for small business
The ACCC has released information for small businesses which may assist members better understanding their rights and obligations under the Australian Consumer Law relating to the coronavirus pandemic (COVID-19).
The guidance provides concise but useful information relating to issues such as: cancelled functions and events; and supply and pricing issues, including charging when a business is not operating.
Australian businesses report widespread impacts from COVID-19 in March
Australian Bureau of Statistics: In the first of a series of upcoming surveys, the Australian Bureau of Statistics (ABS) reports that approximately half of the Australian businesses surveyed (49%) had experienced an adverse impact as a result of COVID-19 during the mid-March data collection period and 86% of businesses expected to be impacted in future months. The collection period pre-dated the Australian Government's announcement of Phase 1 Social Distancing Measures.
Adverse impacts were most prevalent in Accommodation & food services with over three quarters of businesses (78%) already reporting impacts and (96%) of businesses reporting that they expected impacts in coming months. Businesses in professional, scientific & technical services (21%), electricity, gas and water supply (34%) and businesses in mining (37%) were the least likely to have been adversely impacted by COVID-19 in the collection period, read more.
What does COVID-19 mean for the PE & VC Industry?
Over the past few weeks, the COVID-19 global pandemic has put immense stress on every government and business around the world. Public markets have been subjected to extreme volatility as a result of a significant downturn in the economic outlook for most developed markets, including here in Australia.
According to Pitchbook, it is projected that many PE firms globally will have to step-in and prop-up their portfolio companies through the injection of more liquidity, and by reducing exposure to debt where possible. It's also projected that some firms will be in a position to underwrite deals with lower returns, which may lead to a slow-down in the pipeline of investment opportunities in the short-term.
Expectations have also risen that investors may increase holding periods and retain struggling assets over the medium term through a re-building phase. In all likelihood, exit markets are expected to be quite passive particularly across M&A and IPO channels.
Pitchbook expects that VC firms will be primed to capitalise on current market opportunities with the prediction that VC fundraising will remain strong in the period ahead. A number of LPs have under allocated to VC, which may help in building resilience for this segment of the private capital market. The main issue affecting the completion of fundraising and deals in the current environment is the constraint around in-person meetings, which is crucial to confirming a fund commitment, according to Pitchbook.
With the number of Australian businesses now enforcing mandatory work-from-home directives for their staff, many are adapting to the reality of remote working for an extended, and unknown, period of time. Listed below are some useful tips to help ensure that your business and your staff are working effectively and productively from home for an extended period.
Adversity builds innovation
Some companies are already discovering unique ways to adapt their products and services as they adjust to the new world under COVID-19. In the coming weeks we will be publishing a series of blogs that look at how companies are finding innovation in the midst of adversity, read more.
Free access to Ansarada's Pathways Tools
Ansarada: In an effort to support the Australian Investment Council community to be prepared and agile to see members through this environment, Ansarada are providing free access to the Pathways platform for 3 months. Ansarada's Pathways deal preparation tools, materially speed up the process of collating, verifying and sharing documents for due diligence. They can also be used for deployment (targeted acquisitions), revaluation cycles, 'always ready' visibility and strategic reviews. In today's remote working environment, the platform will be of immense benefit to private capital firms and portfolio companies to ensure continued collaboration, transparency and speed to execution in a secure cloud based environment. To activate please contact Nicole Krebs, [email protected] or m 0409 631 002.
Free access given to small businesses
Atlassian: Responding to the sizeable increase of Australians now working from home and the surge of remote working tools, Atlassian has announced teams of up to 10 people will now be able to access Jira and Confluence free, in a bid to help ease the pressure on the small business community.
In addition Atlassian have also compiled a remote work hub which collates tools like Slack and GSuite to help businesses work remotely, encouraging the new norm to be more efficient by using the right products and practices.
Tech sector launches business continuity portal
The Australian Industry Information Association (AIIA): has launched an online resource giving free access to business services during the COVID-19 pandemic. The landing page provides information for Australians on services available to meet their specific remote working needs.
The teleworking technologies offered are significant tools for business and government that enable tele and video conferencing, virtual meetings and events. Free offers available on the site include: Telstra, Google, ServiceNow, Cisco, Facebook, Microsoft, Adobe, Salesforce and SAP, read more.
Bain Risk Assessment of COVID-19 and Actions to Mitigate
Bain & Company: have developed a questionnaire, which includes general business questions (e.g. size, industry, geographic focus) and 12 questions specifically on the COVID-19 risks businesses are facing. After completing the assessment Bain provides a list of mitigating actions generated based on data input, read more.
Cyber security for startups and small businesses with remote working
AustCyber: When staff are working remotely, it's critical organisations are protected from a cyber attack. Having the means to manage cyber risks, and ensuring suppliers and partners are not exposed is vital. AustCyber has outlined security controls such as multi-factor authentication, automatic updates, backing up, how to stay smart online and a cyber fitness fitness online program, read more.
Measuring Fair Value in Times of Significant Uncertainty
Duff and Phelps: Alternative asset managers (GPs) and their investors (LPs) have financial reporting requirements, internal management needs (asset allocation, incentive compensation, portfolio construction, etc.) and a fiduciary duty to measure and report investments at 'fair value.' Fair value is defined as the 'price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.'(FASB ASC Topic 820/IFRS 13)
The first quarter public market sell-off and the expanding uncertainty and unknown impact of the coronavirus create a situation where it is more difficult to apply judgment in determining fair value. Yet, fair value must be determined and determined consistently and objectively even in a highly subjective and changing environment, read more.
IPEV Board, Special Valuation Guidance
The International Private Equity & Venture Capital Board have released Valuation Guidelines providing the framework for delivering LPs the fair value information they need. Given the magnitude of the current crisis accompanied by significant uncertainty, the board highlights what is needed for all managers and investors applying the IPEV Valuation Guidelines ('the Guidelines') at 31 March 2020, read more.
Tax and business relief in response to COVID-19
Deloitte: The Australian Government has released various economic stimulus packages and other support measures, this has lead Deloitte to develop Tax Insights, a document designed to provide businesses with a consolidated view of all the relevant government tax and business reliefs introduced to help Australian taxpayers. It also includes the ATO's administrative positions in respect of certain tax issues that have emerged to date, read more.
How to help clients in financial distress
The Australian Restructuring Insolvency and Turnaround Association (ARITA): has released a special guide for accountants in public practice that provides a framework which can be used to assist businesses going through financial hardship.
The guide explores the options available for businesses depending on their solvency status and where to go for specific solvency and turnaround advice. Importantly, the guide also provides advice on how to navigate the 'safe harbour' laws designed to protect company directors.
How PE firms can tackle the uncharted territory
McKinsey: A crisis is not necessarily foreign to experienced investors, however the outbreak of COVD-19 is without question an 'out of the ordinary' situation. The following section includes some helpful tips compiled by McKinsey for businesses about how they can move through these ever-changing times.
Although it may appear to be too far over the horizon at the moment, once the peak of the crisis has passed and steps have been taken to stabilise businesses, portfolio companies can prepare themselves for growth once more. In previous downturns, many portfolio companies that prepared for the upturn had success by investing at greater rates than their competitors once the low point had passed.
Portfolio companies should also look to prepare for M&A. McKinsey research shows that public companies that outperformed coming out of the last recession divested underperforming businesses faster than others did and made acquisitions earlier to facilitate future growth.
The extent of economic damage from COVID-19 is uncertain at this point. It's prudent for firms to move quickly and decisively on new strategies to help alleviate the affects and prepare for recovery in the months ahead, read more.
Government Announcements - relevant to the private capital industry and portfolio companies
Information for employers on accessing the JobKeeper payment
The government has released guidance for employers on how to access the JobKeeper payment announced as part of its $130 billion package that will give six million Australians access to a fortnightly wage subsidy of $1,500 over the next six months.
To receive the JobKeeper Payment, employers must:
Treasurer announces changes to the Foreign Investment Framework
The Federal Treasurer has announced temporary changes to the foreign investment framework which will require all proposed foreign investments into Australia that fall under the Foreign Acquisitions and Takeovers Act 1975 (the Act) will require approval, regardless of their value or the nature of the foreign investor.
The new threshold amount of $0 will apply to all foreign investment into Australia made on or after 10:30 pm (AEDT) Sunday, 29 March 2020, read more.
The Australian Investment Council is working through the details of the new framework and is seeking further clarity from the Government on the practical implementation of the new proposals, an update can be found here.
Government announces new restrictions on exported goods
The government has announced new restrictions on the exportation of equipment such as disposable face masks, gowns and gloves that, when worn, can limit the transmission of organisms to humans. Hand sanitizer and alcohol wipes are also on the new list of prohibited exports.
Some exemptions apply such as where the items are carried in person and are for personal use, read more.
Prime Minister Announces Further Measures on Corona Virus
Prime minister, Scott Morrison, announced further measures to contain the spread of COVID-19 in an announcement on 24 March.
'We will be living with this virus for at least six months, so social distancing measures to slow this virus down must be sustainable for at least that long to protect Australian lives, allow Australia to keep functioning and keep Australians in jobs,' the Prime Minister said in his statement, read more.
ATO launches consumer resources page for COVID-19
The Australian Taxation Office (ATO) has launched a Coronavirus page on its website which provides detailed information on how Australians can access the tax or superannuation measures announced by the Government as part of its economic response to COVID-19.
The measures include:
providing early access to superannuation
helping employers through cash flow assistance
increasing the instant asset write-off to make more businesses eligible
backing business investment by accelerating depreciation deductions.
Further details are available on the ATO's website. Those requiring immediate assistance can contact the ATO's Emergency Support Infoline on 1800 806 218.
Fiscal and Monetary Announcements
To date, fiscal and monetary initiatives of over $330 billion have been announced. These have largely focused on supporting SMEs. The main business focused initiatives at the Federal level are:
Further details on these initiatives, and state and territory announcements, are provided below.
In addition to these, the government has announced a temporary increase to the threshold at which creditors can issue a statutory demand on a company, from $2,000 to $20,000, and the time companies have to respond to statutory demands they receive. This includes temporary relief for directors from any personal liability for trading while insolvent. (Government Factsheet)
On 20 March, the Federal Government announced the delay of the Federal Budget from 12 May to 6 October. This delay is due to it being 'extremely difficult to formulate reliable economic and fiscal estimates over the next few months' (Federal Treasurer, 20 March). Some states and territories have also delayed their budgets. Without the need to develop and cost budgets, governments (and government agencies) should have greater capacity to develop and implement policy responses.
Parliament will not sit again until 11 August 2020. However, the Coalition and Labor have worked together to make available an extra $40 billion which can be spent without parliamentary approval; the typical 'allowance' is $1 billion.
The Federal Government has announced three stimulus packages costed at $320 billion. Parts of this package will not officially come into effect until new laws are passed.
Increasing the instant write-off threshold to $150,000
The government is increasing the instant asset write-off threshold from $30,000 to $150,000 and expanding access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million).
Timing: This proposal applies from 12 March 2020 until 30 June 2020, for new or second-hand assets first used, or installed ready for use in this timeframe.
Applying a 50% deduction upon installation for other assets
The government is introducing a time limited 15-month investment incentive whereby a deduction of 50% of the cost of an eligible asset on installation will apply, with existing depreciation rules applying to the balance of the asset's cost. This initiative has been termed 'Backing Businesses Investment' or BBI.
Eligibility: Businesses with aggregated turnover below $500 million.
Timing: Assets acquired after announcement and first used or installed by 30 June 2021.
$100,000 payment for SMEs and not-for-profits
The Boosting Cash Flow for Employers measure will provide up to $100,000 (tax free) back to business.
Eligibility: SMEs with aggregated annual turnover under $50 million and that employ workers will be eligible. Eligibility will generally be based on prior year turnover.
Eligible businesses that withhold tax to the ATO on their employees' salary and wages will receive a payment equal to 100% of the amount withheld, up to a maximum payment of $100,000.
Eligible businesses that pay salary and wages will receive a minimum payment of $20,000, even if they are not required to withhold tax.
Timing: The payment will be available from 28 April 2020. The ATO will deliver the payment as a credit to the business upon lodgement of their activity statements. Where this places the business in a refund position, the ATO will deliver the refund within 14 days.
Quarterly lodgers will be eligible to receive the payment for the quarters ending March 2020 and June 2020.
SME Guarantee Scheme
The Government will establish the Coronavirus SME Guarantee Scheme which will guarantee 50 per cent of new loans issued by eligible lenders to SMEs.
The Government will provide eligible lenders with a guarantee for loans with the following terms:
The Government will guarantee up to $20 billion to support $40 billion in SME loans.
Eligibility: SMEs with a turnover of up to $50 million will be eligible to receive these loans.
Timing: Details on timing has not been provided at this stage.
$15 billion support for non-ADI and small ADI lenders
The Government is providing the Australian Office of Financial Management (AOFM) with $15 billion to invest in structured finance markets used by smaller lenders, including non‑Authorised Deposit-Taking Institutions (Non-ADI) and smaller Authorised Deposit-Taking Institutions (ADI). This support will be provided by making direct investments in primary market securitisations by these lenders and in warehouse facilities.
AOFM's investment will not be limited to residential mortgage backed securities. AOFM will also be purchasing assets that support small business (unsecured and secured loans) and consumer lending (including credit cards, automobiles and personal loans).
Wage subsidy of up to $21,000 per apprentice and trainee
Employers of an apprentice or trainee may be eligible for a wage subsidy of 50% of their wage paid from 1 January 2020 to 30 September 2020, up to $21,000. Employers will be reimbursed up to a maximum of $21,000, per eligible apprentice or trainee ($7,000 per quarter).
Eligibility: The subsidy will be available to small businesses employing fewer than 20 full‑time employees who retain an apprentice or trainee.
Employers of any size and Group Training Organisations that re‑engage an eligible out‑of‑trade apprentice or trainee will be eligible for the subsidy. The apprentice or trainee must have been in training with a small business as at 1 March 2020.
Timing: Employers can register for the subsidy from early April 2020. Final claims for payment must be lodged by 31 December 2020.
$1 billion for affected regions and communities
The Government has set aside an initial $1 billion allocation to support those regions and communities that have been disproportionately affected by the economic impacts of the Coronavirus, including those heavily reliant on industries such as:
The $1 billion will be provided through existing or newly established Government programs.
Eligibility: The Minister for Trade, Tourism and Investment will work with affected industries and communities to develop recovery plans and measures.
Timing: The $1 billion will be available for distribution through existing or new mechanisms as soon as practicable.
Additional information is available via the relevant government department and agencies with consolidated information available via the following links:
Reduced interest rates and increasing system liquidity
On 19 March, the RBA also announced initiatives to support system liquidity and pricing. These were the purchase of government securities (Australian, state and territory) and the implementation of a Term Funding Facility. The facility 'will provide funding to ADIs at an interest rate of 25 basis points, fixed for the term of the funding' (RBA, 19 March). This has been implemented with the aim of:
1) '…reducing the funding costs of ADIs and in turn helping to reduce interest rates for borrowers'; and
2) Encouraging ADIs to lend 'to all businesses, although the incentives are stronger for small and medium-sized enterprises (SMEs).'
This has been supported by an announcement by APRA on 19 March 'adjusting' its expectations of ADIs capital - essentially allowing ADIs to reduce their 'substantial capital buffers' through increasing(/maintaining) their lending.
These initiatives should allow ADIs to maintain their lending to Australian businesses and households, and at a reduced interest rates. Some banks have already implemented interest rate cuts (larger than 0.25%) with a focus on reducing business lending rates.
All state and territory governments have announced stimulus packages supplementary to the Federal package.
The Queensland government initiatives total $4 billion. Only some details of the planned spending have been released. Detail to date indicate:
New South Wales
The NSW government has announced a $3.3 billion package, including:
The last state government to announce its package, the Victorian government has focused initiatives on injecting funds into the Victorian economy largely via SMEs. Initiatives include:
The Western Australian government has announced $1.6 billion in initiatives, including:
The South Australian government has announced $1 billion in economic support initiatives and set up a 14 member Industry Response and Support Council. The Council includes representatives from business, property, retail, construction and housing to tourism, primary industries, food, wine and hospitality. Details on the $1 billion package remain thin but include:
The Tasmanian government has announced a $985 million stimulus package, with many initiatives targeting specific industry or sectors. including:
The ACT government's $137 million initiatives include:
The Northern Territory government announced a $60 million stimulus package including a $30 million 'Home Improvement Scheme' and a $20 million 'Business Improvement Scheme'. This includes:
Additional Industry Related Content
GPs ponder early repayments for credit lines as coronavirus threatens liquidity click here.
COVID-19 - Are first time funds off the table? click here.