Companies around the world are to take on as much as US$1 trillion of new debt this year, as they try to shore up their finances against the COVID-19 pandemic, a study of 900 top firms showed.
The unprecedented increase is to see total global corporate debt jump by 12 percent to about US$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 percent rise, driven by mergers and acquisitions, and by firms borrowing to fund share buybacks and dividends.
This year’s jump would 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 US$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 in March slammed shut for all but the most trusted firms, but have been opened up wide by emergency corporate debt buying programs from central banks such as the US Federal Reserve, the European Central Bank and Bank of Japan.
Companies included in the new debt index already owe almost 40 percent more than they did in 2014, and growth in debt has comfortably outstripped growth in profits.
Pretax profits for the same group of 900 companies have risen a collective 9.1 percent to US$2.3 trillion.
Gearing, a measure of debt relative to shareholder finance, last year hit a record 59 percent, while the proportion of profit devoted to servicing interest payments also rose to a new high.
US companies owe almost half of the world’s corporate debt at US$3.9 trillion and in the past five years have seen the fastest increase of any major economy with the exception of Switzerland, where there has been a wave of major mergers and acquisitions.
Germany comes in at number two at US$762 billion. It also has three of the world’s most indebted firms including the most indebted, Volkswagen, which with US$192 billion of debt is not far behind countries such as South Africa or Hungary, although it is inflated by its auto finance arm.
In contrast, a quarter of the companies in the index have no debt at all, and some have vast cash reserves. The biggest of these stands at US$104 billion and belongs to Google’s owner, Alphabet Inc.
Meyer said that credit markets still had some way to go to get back to pre-COVID conditions and the ongoing threat of the virus, especially the recent surge in US cases, remained investors’ central concern.
“It is all a recipe for a more challenging outlook than we thought two months ago,” he said.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day
Thousands of parents in Singapore are furious after a Cordlife Group Ltd (康盛人生集團), a major operator of cord blood banks in Asia, irreparably damaged their children’s samples through improper handling, with some now pursuing legal action. The ongoing case, one of the worst to hit the largely untested industry, has renewed concerns over companies marketing themselves to anxious parents with mostly unproven assurances. This has implications across the region, given Cordlife’s operations in Hong Kong, Macau, Indonesia, the Philippines and India. The parents paid for years to have their infants’ cord blood stored, with the understanding that the stem cells they contained