Corporate borrowings reach record high
Company borrowings have reached a record US$8.3 trillion ($12 trillion) in 2019, up 8.1% year-on-year – the fastest increase in at least five years, according to a report from Janus Henderson.
In its ‘Corporate Debt Index’ report, Janus Henderson expected company debt to rise by around US$1 trillion in the next year, a 12% increase.
Debts had risen faster than profits over the past year as companies borrowed to fund takeovers and buybacks.
Jay Sivapalan, head of Australian fixed interest, said there could not have been a worse combination of elevated debt levels and a significant economic shock, due to the COVID-19 pandemic.
“The response by governments on the fiscal side and monetary policy has also been unprecedented which together has stabilised markets,” Sivapalan said.
“When a shock occurs, it’s the congruence of events that brings down companies and that is a sudden unavailability of credit and the high price of credit as investors fear lending money which may not be returned.”
Sivapalan said companies had reached peak debt around the globe, which meant there would be cutting of dividends, avoiding buybacks and a reduction of gearing.
“Painfully for shareholders, in order not only to survive but also to right-size their debt level for the realities of the other side of this pandemic,” Sivapalan said.
“Lots of change coming, all this at a time when there’s an ageing investor base that’s desperately seeking income.
“Risk free assets such as government bonds or cash is simply not going to cut it anymore with ultra-low cash rates and bond yields.”
Recommended for you
GQG Partners has completed the acquisition of the minority interests held by Pacific Current Group in three affiliates which will form its new Private Capital Solutions division.
The wealth management firm has unveiled a new fund in partnership with PG3 AG and investment specialist Longreach Alternatives, describing the investment solution as an “alternative” to traditional alternatives.
Fidante affiliate NovaPort Capital has announced the closure of its small cap and microcap funds, citing expected declining flows.
T. Rowe Price believes Australian growth is successfully managing to shrug off consumer weakness, but the firm’s multi-asset team is not yet positive enough to increase its underweight position.
