Record company debt levels set to soar by $1trn in 2020 - Janus Henderson
VW world’s most indebted company
Debts racked up by companies across the world reached a record $8.3trn in January this year and are expected to surge by a further $1trn in the wake of the Covid-19 pandemic, analysis suggests.
Janus Henderson's Corporate Debt index said global company debt was up 8.1% year-on-year, its fastest rate of growth for five years.
It explained companies borrowed to fund takeovers, share buybacks and dividends, as well as to invest and debts have risen "significantly faster" than profits over the last five years.
Rising levels of company debt began long before the coronavirus pandemic began, according to the annual index report. It said collectively net debts jumped by $625bn last year, "easily the largest increase of any of the last five years".
It added borrowing had been spurred on in recent years by very low interest rates and availability of credit through central bank stimulus packages.
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The Corporate Debt index features the largest non-financial companies in the world. Janus Henderson said these firms owe almost two-fifths (37%) more than they did in 2014 and growth in debt has comfortably outstripped growth in profits.
Pre-tax profits for the same group of companies have risen a collective 9.1% to $2.3trn, the report said.
Gearing, a measure of debt relative to shareholder finance, rose to a record 59% in 2019, while the proportion of profit devoted to servicing interest payments also rose to a new high.
These trends all accelerated in 2020 as the Covid-19 pandemic struck.
Janus Henderson's analysis of bond markets shows that companies in its index owe half their debts in the form of listed bonds. The companies issued an additional $384bn in bonds between January and May, an increase of 6.6% compared to the end of December balances.
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