Bri­tain is now Europe’s hub for ‘zom­bie’ com­pa­nies

The Daily Telegraph - Business - - Front Page - By and

Tom Rees Michael O’Dwyer BRI­TAIN has be­come Europe’s “zom­bie” cap­i­tal, ac­count­ing for a third of the re­gion’s in­debted com­pa­nies kept alive by record low in­ter­est rates and bailouts.

The share of UK non-fi­nan­cial busi­nesses that are zom­bies has jumped six per­cent­age points to 15pc in the last year, the high­est level in Europe, ac­cord­ing to data from Bank of Amer­ica.

Its an­a­lysts found the Covid-19 shock trig­gered a “surge” in the num­ber of Euro­pean zom­bies in the first quar­ter, and warned that UK firms “stand out” in par­tic­u­lar. The warn­ing came as new fore­casts pre­dicted the cri­sis will cause global cor­po­rate debt to swell to a record $9.3 tril­lion (£7.4 tril­lion). Zom­bie firms are de­fined by their abil­ity to pay the in­ter­est on their debt pile.

“Too much debt risks leav­ing cor­po­rates

‘Too much debt risks leav­ing cor­po­rates as zom­bies, mak­ing it more chal­leng­ing to re­bound from re­ces­sion’

as zom­bies, which makes it even more chal­leng­ing for economies to re­bound from re­ces­sions vig­or­ously,” warned Barn­aby Martin, credit strate­gist at Bank of Amer­ica.

He said the rock­et­ing num­ber of zom­bie firms “puts ex­tra ur­gency on proac­tive fis­cal pol­icy by gov­ern­ments to help re­duce cor­po­rate lever­age in this cri­sis”. Mr Martin urged pol­i­cy­mak­ers to use “in­no­va­tive ideas” to tackle the is­sue as com­pa­nies strug­gle with their debt loads. Bank of Amer­ica found that zom­bies had much weaker lev­els of cap­i­tal ex­pen­di­ture and em­ploy­ment growth in the last decade. They also had un­der­per­form­ing share prices, mak­ing it harder for them to tap mar­kets for funds.

The moun­tain of cor­po­rate debt world­wide is set to surge by $1 tril­lion this year to a record $9.3 tril­lion, ac­cord­ing to new fore­casts from fund man­ager Janus Hen­der­son.

Bor­row­ing is ex­pected to rise as com­pa­nies wean them­selves off cheap emer­gency lend­ing schemes set up by gov­ern­ments and cen­tral banks dur­ing the coro­n­avirus cri­sis.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.