Coronavirus bringing record $1 trillion of new global corporate debt in 2020: Report
Coronavirus bringing record $1 trillion of new global corporate debt in 2020
LONDON: Companies around the world will take on as much as $1 trillion of new debt in 2020, as they try to shore up their finances against the
coronavirus, a new study of 900 top firms has estimated.
The unprecedented increase will see total global corporate debt jump by 12% to around $9.3 trillion, adding to years of accumulation that has left
the world's most indebted firms owing as much as many medium-sized countries
Last year also saw a sharp 8% rise, driven by mergers and acquisitions, and by firms borrowing to fund share buybacks and dividends. But this year's jump will be for an entirely different reason -preservation as the virus saps profits.
"COVID has changed everything," said Seth Meyer, a portfolio manager at Janus Henderson, the firm that compiled the analysis for a new corporate debt index. "Now it is about conserving capital and building a fortified balance sheet".
Companies tapped bond markets for $384 billion between January and May, and Meyer estimates that recent weeks have set a new record for debt issuance from riskier "high yield" firms with lower credit ratings.
Lending markets had slammed shut for all but the most trusted firms in March, but have been opened up wide again by
emergency corporate debt buying programmes from central banks like the U.S. Federal Reserve, the European Central Bank and Bank of Japan.
Companies included in the new debt index already owe almost 40% more than they did in 2014, and growth in debt has comfortably outstripped growth in profits.
Pre-tax profits for the same group of 900 companies have risen a collective 9.1% to $2.3 trillion. Gearing, a measure of debt relative to shareholder finance, hit a record 59% in 2019, while the proportion of profit devoted to servicing interest payments also rose to a new high.
U.S. companies owe almost half of the world's corporate debt at $3.9 trillion and have seen the fastest increase in the last five years of any major economy with the exception of Switzerland where there has been a wave of major M&A deals.