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Tuesday, January 31, 2023

American, European companies under 292 lakh crore debt

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The balance sheets of many companies have been disturbed because of the highest increase in interest rates in the last 15 years in the USA and other western countries. The companies which had bought corporate bonds in order to avert bankruptcy during the pandemic, are now selling them, and money in the markets is reducing. The values of the corporate bonds of lesser trustworthy companies are falling. With this, uncomfortable questions are being raised about the loans taken by the companies during the last 20 years.

After 2000, the non-financial corporate debt in the USA has increased from being 64% of the GDP to being 81%, and in the EU, it increased from being 73% of the GDP to being 110%. In Britain, it is 68% of the GDP. In the USA, Britain and Europe, the debt on companies listed in the share market is more than 154.78 lakh crores, and on those which are unlisted, it is more than 138.36 lakh crores. The profit of listed companies in the USA before paying interests and taxes is 6.7 times, while it was 3.6 times in 2000. In Europe, the profit has increased from 4.4 to 7 times, nevertheless, problems will emerge because of the increasing rate of taking loans.

Loan recipients will also be affected because of the debt floating interests of bank syndicates, non-banking debtors, and private asset managers like Apollo and Blackstone in the USA. A number of conditions come along with interests of such kind. If the situation deteriorates, the options of recovery for the debtors will reduce as well. Zombie companies, which are alive due to lesser interests during the pandemic, which, even though are earning profits, but are unable to pay back their debts, can prove to be weak as well.

Sonakshi Datta
Sonakshi Datta
Journalist who wants to cover the truth which others look the other way from.

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