UK firms will need new equity to cope with Covid-19 debt surge: TheCityUK

[LONDON] About a third of the debt being taken on by British companies under the government's emergency coronavirus lending programmes could be unsustainable, raising the need for fresh capital from new investors, a finance industry body said on Sunday.

TheCityUK said that by the end of March 2021, companies might be struggling to meet the financing costs of up to 36 billion pounds (S$63.7 billion) of debt under the Covid-19 credit schemes that carry government guarantees for banks lending to firms.

That was on top of about 60 billion to 70 billion pounds of existing debt that was also likely to be straining borrowers.

The sectors most exposed were property, accommodation and food services and construction, with small and medium-sized firms accounting for about half the total, TheCityUK said.

"Lifting the debt burden from the shoulders of otherwise viable businesses will be essential to supporting a robust and sustainable economic recovery," Miles Celic, the group's chief executive, said in a statement.

"However, this is a huge and complicated challenge. It is already clear that there won't be a one-size-fits-all solution."

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Private-sector capital could help plug the expected equity shortfall with options including an enhanced role for private equity and the unlocking of investment from British insurers and pension funds. But gaps might remain for the public sector.

Bank of England Governor Andrew Bailey, who previously warned of the possible need for a state role to help companies cope with their higher borrowing, said the Covid-19 pandemic would leave many firms in need of recapitalisation.

"How successful this recapitalisation is will have a major impact on the sustainability and effectiveness of the economic recovery - and, therefore, the number of jobs the economy can support," he said on Twitter.

REUTERS