Interest is a danger in the way of companies. $ 6 trillion, a debt mine that could cause a new crisis

During the two years of the Corona pandemic’s dominance of the global economic scene, corporate debt increased and profits were damaged, but as the pandemic’s influence diminished relatively, and the economic landscape began to improve, concerns about the companies’ inability to repay their debt decreased. , and they were able to meet their obligations to banks, financial institutions and creditors by strengthening their capacity.
Companies could have dealt positively with this situation, even if it would have been necessary to pump more investment through more loans, but this light faded quickly, and it did not glow for long, so inflation rates rose, and central banks rushed to working to curb it by raising interest rates, and then The discussion was about ways to curb inflation, and there was tension in the atmosphere that inflation would be accompanied by economic stagnation, which would leave many negative imprints not only on countries, but also on companies and their debt as well.
Corporate debt has been rising since 2010 due to the financial crisis that hit the Western world in 2008, and thanks to many years of financial easing policies and the reduction of interest rates to very low levels, which sometimes reach below zero, the world economy, especially the US one, began to recover, and by Q3 2019, corporate debt had reached new record levels.
The situation has started to change relatively since last March, as the global debt burden of companies declined by about 2 percent for the first time in eight years, marking the first annual decline in debt since 2014, amid expectations that companies would have an additional 270 billion will pay dollars by March (March) 2023 based on outstanding debt levels and issuance expectations.
She told the Economist, Monica Arthur, a banking expert, that “there is a great deal of variation in debt levels between companies, and the analysis of data at company level shows that some of the largest global companies, especially those in the field of information technology, communication services and care Healthcare has been driving the debt momentum since 2010, and fortunately now it seems that this group is in a better position to repay their peers in other sectors. ”
The logic of this analysis is based on the way companies reacted to the shock of the Corona epidemic, as the large debtor companies extended their financial maturity and benefited from the low real cost of debt due to low interest rates at the time, but now the situation is different, the cost of new credit is high due to the rise of central banks Interest rates to counter inflation, which means a decrease in companies’ desire to obtain new financing, and their preference for their debt pay back and postpone their capital expansion in light of the stagnation indicators flying in the air.
However, Professor Merrick Tommy, Professor of International Economics at the University of Belfast, confirms that the issue of corporate debt is more complex than it is. The capitalist system has contributed to the development of what he describes as corporate debt addiction, specifically in the over the past five decades, whether through the tax system or low interest rates, and stimulated pension funds and insurance companies have been buying corporate bonds in large quantities, and in his view it has helped large capitalist economies such as the United States, Britain and Japan increase their competitiveness by large to inject capital into companies.
He told Al-Eqtisadiah that “this situation looks positive in moments of recovery, but in times of crisis, as has happened as a result of the Corona epidemic and to some extent as a result of the repercussions of the Russian-Ukrainian war, the fragility of the debt-based economy becomes very dangerous as it can enter The international economy is a stage in which economic growth is weaker, with high debt, and the inability of companies to pay their financial membership fees.
But when it comes to corporate debt, it seems very common from the point of view of many experts, and does it require a number of questions to be answered about which companies have been behind the excessive debt over the past decade and during the pandemic? What is the financial position of these companies, which means they have the ability to pay their debts in light of the decline in economic activity? Have the investments of these companies really increased with the increase in their debt?
Since 2000, the total long-term debt of the largest 1,000 non-financial corporations has grown by nearly 10 percent at market value, with their total debt estimated at nearly $ 6 trillion, and the debt of these companies increased at a faster rate in 2020. about 14.5 percent compared to 2019, and about 5 percent. Only these 1,000 companies account for 30.7 percent of the group’s total long-term debt, much higher than it was ten years ago.
In turn, “The Economist” David Eric, an expert in financial analysis, explained that “three sectors, which are information technology, communication services and healthcare, have led the growth of debt since 2010, especially in the years of Corona, in line with the growing importance of these sectors in economic and commercial activity. ” Not only that, these sectors increased their debt rapidly even during the pandemic, and the increase in debt in these sectors is not surprising as its impact extends to other sectors It also notes that the share of industries and utilities in long-term debt has declined in line with their contribution to the broader economy.
And about the ability of companies to pay off their debt, the issue remains a matter of controversy among experts, as many of them link that ability to a number of variables, including the pace of economic growth and energy prices. There is no doubt. that the decline in economic growth will lead to the weight of inflation or stagnation or both. This will reduce the ability of companies to pay off their debts, and it will be necessary for them to balance between reinvesting the profits they make in capital expansion and postponing the payment of bank interest burden on loans for a while, or the repayment of the loans they owe at the expense of stopping their capital expansion, and the high prices of energy For now, it may reduce its willingness to borrow if it decides not to expand capital.
The key question remains whether the increase in corporate debt since 2010 has been offset by an increase in investment. If investment grows in line with debt, there is no doubt that it represents a positive trend for the economy, but if it does not, the high level of debt, estimated at trillions of dollars, becomes a global crisis.
In turn, Amy Kind, professor of corporate accounting at the London School of Commerce, points out that capital expenditure has often not kept pace with debt, and that the capital spending of the largest 1,000 companies in the world has not kept pace with their debt. . , and that those expenses grew by an average of 6.7 percent, that is, lower than the corresponding growth in long-term debt of 9.7 percent.
But she adds that this picture is common in the analysis, and that there is a difference within groups of companies, the ten largest companies in the world that led to the expansion of debt, increased their capital expenditure faster than others, and this group has continued to increase capital spending even in the face of the Corona pandemic, and at a correct economic pace and healthy.
China’s Evergrande group, with debt estimated at $ 310 billion, Germany’s Volkswagen $ 192 billion, US AT&T $ 176 billion, German carmaker Daimler $ 151 billion, and Japan’s Toyota $ 138 billion, are the five companies with the most debt in the world.
In fact, the Chinese real estate development group Evergrande, which defaulted on its debt last year, raised questions that went beyond the Chinese group to research the ability of the five major companies to deal with the issue of debt, taking into account of that interest rates at that time were low, and despite the fact that there is not yet a date for the preparation of this report on which indicates that any of these companies are having difficulty in the process of repaying their debt and the situation may not continue like this much, if the US Federal Reserve continues to move forward with the policy of raising interest rates and the banks follow The International Central Bank, as we can then find some large companies, either of these five or less in weight and debt who are unable to pay, and need the governments of their countries to provide them with a helping hand to make a repeat of d to avoid the disaster of the American Lehman Brothers Bank in 2008, which was the beginning of a crisis that affected the global economy. .

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