The global economy is facing a growing storm of corporate debt distress, as the number of bankruptcies of large companies is accumulating at the second fastest pace since 2008, according to data compiled by "Bloomberg".

 

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 Edited  by |ANNA sam

 

Economic   section -  CJ journalist

 

World – July,19,2023

 

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While a growing wave is being driven by debt burdens that have ballooned during the era of unusually cheap money, companies that owe more than half a trillion dollars may not be able to repay them, or at least will struggle to do so.

The agency "Moody's Investors Service" predicted that the default rate of speculative companies around the world will reach 5.1 percent next year, up from 3.8 percent in the twelve months ending last June, and under the most pessimistic scenario, it could jump to 13.7 percent, surpassing the level reached during the credit collapse of 2008-2009, and the increasing defaults could lead to the first large-scale cycle of defaults since the great financial crisis.

Beneath the surface of these bankruptcies lies an even more troubling issue: the large debt burdens that have accumulated during historically low interest rates.

As central banks around the world raise interest rates and signal a long-term position, these debt burdens are becoming an increasing burden for companies that in the past benefited from the easy availability of cheap credit.

The number of corporate debt defaults in 2023 exceeded the total number of defaults seen last year, according to data from the agency "Moody's Investors Service".

Moody's data shows that 55 US-based companies defaulted on their dues in the first six months of the year, representing 53 percent of the total number of defaults for 2022, as only 36 companies failed to meet their debt obligations last year.

Defaults in the United States also accounted for the majority of corporate debt defaults around the world this year, according to "Business Insider", as 81 companies globally failed to repay their debts in the first half, and the global 12-month default rate reached 3.8 percent last June, up from the global default rate of 2.8 percent recorded in December 2022.

"Moody's expects global corporate defaults to continue to rise, with the overall global default rate ending at 4.7 percent. The company said that in an unlikely but more serious scenario, with the probability that the global rate will reach 13.7 percent, exceeding the rate of the 2008 financial crisis.

From Britain to Sweden and France, heavily indebted companies began to feel the pressure of rising inflation and interest rates, and considering some of the largest European companies whose financial problems are now in the spotlight, the most prominent of which, as reported by Reuters, was "Thames Water", the largest water supplier in Britain, whose debt amounts to 14 billion pounds (18.12 billion dollars), which prompted the British government to study the temporary ownership of the company in case Thames Water could not raise more funds to repay the debt.

Since last year, Thames Water has asked shareholders for an additional investment of one billion pounds sterling (1.2 billion dollars) in addition to the 500 million pounds sterling (646.4 million dollars) they provided in March last year, to strengthen its balance sheet and finance the necessary modernization of the old infrastructure.

The company said earlier in July that shareholders would provide 750 million pounds (969.8 million dollars), but warned that it would need an additional 2.5 billion pounds (3.2 billion dollars) between 2025 and 2030.

By the second of October, the largest water companies in England and Wales must provide the regulator with their business plans for 2025-2030.

Also there is the heavily indebted company "casino", which is the sixth largest food retail company in France in terms of market share, employs more than 50 thousand people in France, while its debt volume amounted to 6.4 billion euros (7.17 billion dollars) in the form of net debt.

Today, "Casino" is facing three billion euros (3.36 billion dollars) of debt payments in the next two years, with rating agencies Moody's and Standard & Poor's warning of a possible default, and the holding company, through which veteran businessman Jean-Charles naury controls, is also burdened with debt.

Last May, the "casino" began Court-backed talks with creditors, and last June, it asked interested parties to submit table offers entailing at least 900 million euros (one billion dollars) of new funds to finance the relaunch.

Czech billionaire Daniel Kretinsky is considered the frontrunner to acquire "casino" after the withdrawal of competitors" F holding 3" from the race, while Kretinsky submitted a revised offer over the weekend proposing to inject 1.2 billion euros (1.3 billion dollars) of shares and convert almost five billion euros (5.6 billion dollars) of debt into equity, and "Casino" aims to secure an agreement with creditors by July 27.

The debt of "3 SBP", one of the largest business owners in Sweden, reached SEK 81 billion (USD 7.91 billion), and today it is fighting for survival since its shares fell last May, due to concerns about its financial position and refinancing its accumulated debts, as well as concerns about the weak economy and high interest rates that have harmed Sweden.

Meanwhile, Sweden is investigating whether the company violated accounting rules in its annual report for 2021, at a time when the company is looking to find a buyer for all or parts of its business to improve its financial situation, it has sold almost all of its stake in the real estate company "Hebab dot St", and plans to sell the remaining 51 percent of its educational branch "IDEO Co" to "Brickfield" with the aim of reaching an agreement to sell the stake of" IDEO Co" by the end of July.

The company "Celsa", the largest private industrial company in Spain, which employs 4,500 employees, is also facing a debt crisis, the company's debt amounted to three billion euros(3.3 billion dollars), and the covid pandemic crisis had affected the company's business due to the closure and the difficulty of obtaining raw materials, which led to its loss of 364 million euros (408.1 million dollars), and while performance has improved since then, creditors argue that the company is in default and its property rights are worthless.

Creditors last September submitted a restructuring plan under the new insolvency law that provides for a debt reduction of about 1.29 billion euros (1.45 billion dollars) and control of the company, but shareholders object to their assessment while trying to retain control of the group.

After a six-day court hearing in July, a Barcelona judge is expected to issue a decision on the restructuring plan in September.

Today, experts warn of a wave of defaults hitting the economy, thanks to rising interest rates and banks ' retreat from lending after a series of failures of regional banks earlier this year, as these two factors led to a tightening of financial conditions, which also increases the risks of recession, amid expectations of reaching a trillion dollars in debt.

 

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