Delivery, delivery, delivery" seems to be the current UK government’s mantra when it comes to infrastructure. And yet, the verdict of businesses on the government’s track record of delivering infrastructure projects is fairly damning. A recent survey by the Confederation of British Industry (CBI) and KPMG, Connect More, garnered the views of more than 500 users, investors and providers of infrastructure.
Should ‘zombie’ companies be pushed over the insolvency edge for the good of economic growth? It is a question that continues to be asked in the UK media. Kept alive by loose monetary policy and low interest rates, but generating insufficient cash from operations and starved of capital, they can neither invest in plant and equipment, nor present a three-year track record of progress with strong prospects.
The UK government’s Funding For Lending Scheme, where the Bank of England (BoE) offered cheap funding for bank loans to qualifying companies, has been widely reported as a failure. Banks, quite rightly, have not got carried away with the offer of cheap lending and have been applying prudent lending criteria. Despite these companies having an urgent need to replace worn-out equipment or for working capital for new contracts, a recent history of no growth, weak balance sheets and under-capitalisation is not what banks are looking to lend to.
But before writing off the zombies, are the problems rooted in their business model or their capital structure? Having continued to trade through arguably the worst UK recession in the last 100 years suggests their business model is not broken. This points to the capital structure as the problem. With that resolved they could attract lending and investment, then grow.
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