Corporate net debt hits 8-year peak in Apac ex-Japan; falls globally: Janus Henderson

CORPORATE net debt in the Asia-Pacific (Apac) ex-Japan rose by 6.9 per cent on a constancy-currency basis to US$351 billion in 2021/2022, the highest in 8 years, based on asset management firm Janus Henderson Investors’ records. 

According to the latest annual Janus Henderson Corporate Debt Index, the net debt for the region was up 5.7 per cent from the previous year, where it was US$332 billion.

Singapore’s debt surged 16.2 per cent on a constant-currency basis to US$55 billion, from US$47 billion the year before. Wilmar International, which experienced weak cash flow and high investment costs, drove up debt as it covered the shortfall with additional loans, the report said.

Meanwhile, global net debt fell for the first time since 2014/2015 in the 2021/2022 period down 1.9 per cent to US$8.15 trillion in 2021/22. This represented a reduction of 0.2 per cent on a constant-currency basis, on the back of increased cash flows from record-high operating profits.

Despite the rise recorded in Apac ex-Japan, almost three-fifths of the companies in the index saw a year-on-year (yoy) drop in indebtedness, with net debt to equity holding steady at 19 per cent. Interest burden on operating profit also weighed in well below the global average at 8.3 per cent.

In South Korea, which registered one of the largest borrowings surges, net corporate debt jumped 37.8 per cent yoy on a constant-currency basis, as Hyundai “bucked the trend in car manufacturers everywhere”, the report said. Cash flow was negative for the year even amid good profitability, as higher sales meant a big increase in its finance book.

In Hong Kong, increases in utility debts were balanced by decreases in debt for telecoms and oil stocks, the report found.

Debt in Taiwan, on the other end of the spectrum, fell sharply from the previous year by 25.1 per cent, with two-thirds of the Taiwanese companies in the index recording net cash on their balance sheets.

Similarly in Australia, debt was down 21.5 per cent on a constant-currency basis. “The highly cyclical nature of Australia’s large mining industry means debt levels are relatively low for a developed Anglo-Saxon economy,” Janus Henderson said.

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Mining group BHP accounted for two-fifths of the reduction, while 8 in 10 companies in the index repaid debts during the year.

“Economic growth may slow or go into reverse, but companies are starting from a very profitable position so they have strong cash flow and can easily cover their interest expenses,” Janus Henderson said.

“Companies will weather the downturn and use cash flow to reduce borrowings further rather than face an existential challenge that might require them to turn to lenders again to see them through.”