Global corporate debt sets new record


The debt of some companies is approaching the level of debt of entire states.

Global corporate debt will set a new record. Photo:

The COVID-19 epidemic has forced companies around the world to resort to new loans to maintain their business. According to a Janus Henderson study, total global corporate debt will grow 12% to $ 9.3 trillion in 2020.

The study included 900 major global companies with analysis of credit growth from January to May.

Last year, there was a sharp increase of 8% in global corporate debt. This was due to mergers and acquisitions as well as a large number of large firms that resorted to finance for repurchase of shares and payment of dividends.

But this year the leap will be for a completely different reason – companies’ willingness to maintain their businesses due to lower profits due to coronacrosis.

“COVID has changed everything,” said Seth Meyer, Janus Henderson’s portfolio manager. “Now we are talking about preserving capital and creating a strong balance.”

Between January and May 2020, the companies entered bond markets and leveraged $ 384 billion in the period. In recent months, new records have been set for issuing debt obligations from high-risk companies with high returns and low credit ratings.

Companies included in the new Janus Henderson debt index already owed about 40% more than in 2014, and debt growth was well ahead of profit growth. Profit before tax increased only 9.1% to $ 2.3 trillion for the same group of 900 companies.

US companies control nearly half of the $ 3.9 trillion global corporate debt. American corporations have been in the forefront of debt growth over the past 5 years, with the exception of companies from Switzerland where a wave of big deals, large mergers and acquisitions has been going on in recent years.

In second place is Germany, with a total corporate debt of $ 762 billion. There are three largest lending companies in the world, among them Volkswagen, whose debt level of $ 192 billion is comparable to the debt of countries like South Africa or Hungary. These loans also originate for Volkswagen, which the company allocates to car loans to end customers.

In contrast, a quarter of the corporations in question have no debt, and some, by contrast, have huge monetary reserves. The largest stock at $ 104 billion is from Alphabet, the parent company of Google.

According to economists, a significant recovery in the global economy is expected only in 2021. At the same time, the depth of the recession this year means that economic activity will continue to decline based on the conditions set by the epidemic.

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Earlier, we wrote that the losses from unpaid bank loans around the world would be $ 1.3 trillion this year, more than twice the figure for the previous year. According to analysts, by the end of next year, the deficit will reach $ 2.1 trillion.

Read: How much the global tourism business will lose due to an epidemic: United Nations announces a forecast

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