Getting The Most Out Of New Capital

Investec’s AIM Treasury team explain to listed companies why they may not be getting the most out of their money after a new listing or Placing. 

The London Stock Exchange’s Alternative Investment Market (AIM) has, for almost 20 years, provided the venue for smaller businesses to dip their toe in the public markets and 2014 has been a bumper year, with funds raised trebling in the first half relative to 2013.

The expanded market access is clearly good news for companies, but with new capital comes new challenges, especially in the current low interest rate environment in which firms find it ever-harder to generate competitive returns on their cash positions. An individual business is likely to have a variety of purposes for new funds and only an experienced treasury specialist with a full range of capabilities is equipped to help Treasurers, Chief Financial Officers and Financial Directors identify the best way to manage the proceeds of a fund-raising.

Issues vary from simple cash management – getting the best rate for cash deposits; through to managing the conflict between the need to access funds quickly and the duty to get the best returns; and, for firms with an international horizon, navigating the foreign exchange markets. Investec has a full range of Treasury capabilities designed to support firms following capital-raisings.

A suite of solutions designed for clients listing on AIM demonstrates the cost savings that can result from creating a solution tailored to a firm’s specific needs. In a recent example, one company raised £10 million on AIM, with the planned use of the proceeds being three-fold: working capital, business development and to cover the costs associated with entering a new market, the USA.

Immediately following the IPO, the company deposited their raised capital in a basic instant-access account, yielding no interest, and had no arrangements in place for managing the foreign exchange risk posed by its need to buy dollars to expand into the US. So they reached out to Investec.

Investec worked closely with the client, identifying its various needs: a proportion of funds needed to be spent on a monthly basis for operational costs such as rent and payroll; some were earmarked for the initial purchase of $2 million to fund the US expansion; and the remainder was surplus to immediate requirements, unlikely to be deployed within a year.

A Flexible Deposit:
Our first solution was an amortising deposit, allowing the client to earn a competitive rate of interest on the proportion of funds set aside to meet monthly operational expenses. This deposit provided a 12-month fixed interest rate, with monthly maturities that corresponded to the firm’s predictable running costs and, over the life of the deposit, would earn the client £15,000 more in interest than it was being offered elsewhere.

Currency Saving:
The second challenge was the need to buy dollars. The client had a two-week window in which to do so, at a time when the dollar was trading at the high end of 1.68 to the pound. Our FX desk was able to work an order to buy the currency at 1.70, which was filled a week later, saving the firm $14,000 compared to the rate it would have achieved had it done the currency conversion on the day it received its funds from the listing.

Making Money Work:
This left a £5 million surplus. Given the low rate environment and the expectation that these funds would not be needed for at least a year, we placed them on a 12-month variable-rate deposit. This gave the client the potential to outperform the fixed-rate equivalent for the period, making that surplus work as hard as possible while being kept on balance without an immediate use.

Every day, Investec establishes similar solutions for both growing and mature businesses alike. Through our dedicated Treasury desk we offer a one-stop shop for all our clients’ cash management needs (with the same team covering the range of treasury asset classes; FX, cash, rates, commodities, inflation), meaning our clients can concentrate on the day-to-day running and profitability of their business.


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