Photo: Johannes Eisele Agence France-Presse
About 4000 billion of debt obligations maturing within three years and will force their businesses to repay or refinance it in a context that is less favourable.
Ten years of economic growth and exceptionally low interest rates have led to a record debt of companies in the world. However, nearly one-third of this debt is mostly of poor quality will soon need to be renegotiated, so that the growth is slowing and interest rates up.
“The outstanding global bonds issued by non-financial companies reached a record level of close to 13 000 billion us dollars at the end of 2018,” reported Monday, the Organization for economic cooperation and development (OECD) during the unveiling of a study on the subject. This total is two times higher than before the onset of the financial crisis of 2008, even taking into account inflation.
Nearly 80 % of these debt securities (10 200 billion) have been issued in the richest countries — of which 35% was by american companies and 20 % by european companies — where the volume of corporate bonds has increased by 70 % in ten years. With always that for the fifth of the total, with 2800 billion, the developing countries have, however, multiplied and this form of debt by four, thanks in particular to the chinese companies who had almost no action until 2008, and have now for almost $ 600 billion in circulation.
Encouraged to get into debt
The increasing use of this form of borrowing by companies has been encouraged by the public authorities, who saw it as a good way to fund long-term, notes the OECD. It fit well also with the program of massive purchase of assets by central banks as a way to inject liquidity into the economy. It is estimated, for example, that bonds of firms in developing countries have been two times lower, from 2009 to 2013, had not been the quantitative easing programs of the us federal Reserve.
The maintenance of interest rates to levels that are extraordinarily low by these same central banks over the past ten years, the thirst for yield from investors and a carefree growing financial risks as fading memory of the financial crisis have done the rest, explained in a blog of the economists of the international monetary Fund in November, in the wake of the publication of the Report on financial stability in the IMF world. The problem observed, is that the growing indebtedness of the enterprises has often been used to finance acquisitions and share repurchases and the payment of dividends to shareholders, rather than investments that can improve the productivity of businesses.
The other problem, says the OECD in its report, is that the solidity of the foundations financial companies that issue bonds declining. In 2008, less than one-third (30 %) of the new bonds was just the limit below which these securities would have been regarded as speculative and therefore out of the game for large institutional investors such as pension funds. Last year, they were more than half (54 %) to be nothing more than a downgrade by the rating agencies to ” junk bonds “, ” this represents a historic peak “, are the authors of the report.
However, the future promises to be more complicated for all of these companies that have a lot borrowed, continues in the OECD. Central banks have started a slow rise of their interest rates. The global economy is showing signs of shortness of breath. The escalation of trade between the United States and the rest of the world, the uncertain outcome of the negotiations of Brexit and the slowdown of growth in China do nothing to improve things.
Should a financial shock similar to that of 2008 from happening again, more than $ 500 billion in corporate bonds basculeraient in the year in the securities market category speculative where investors are more rare and much more expensive.
The developing countries
But, even if such a catastrophe does not occur, about 4000 billion of debt obligations maturing within three years and will force their businesses to repay or refinance it in a context that is less favourable. The challenge looks even greater in the developing countries, where almost half (47 %) of all of the obligations which come to an end.
The OECD does not stop in the case of Canada in its report. In its last financial system Review, Bank of Canada brushed her a portrait rather reassuring of the situation while highlighting the growth of the debt and the “plummeting” revenues in the oil and mining sectors. Overall, the level of indebtedness of canadian businesses remains in the average of the past twenty years, she said, and ” there is nothing to indicate an increase in the share of debt held by firms with a balance sheet in a precarious “.