Credit zombies on the rise as real estate firms lead charges


The living dead of the corporate world are multiplying and it is the real estate sector that is the most vigorous.

New study of companies that have dodged default for years even though they don’t have enough money to pay interest comes as markets from Hong Kong to New York are shaken by the giant’s clash China Evergrande Group real estate with its creditors.

The Kearney consultancy found their numbers to have grown by 9% globally over the past decade, in part because accommodative monetary policy has allowed them to continue to repay their debts.

While ‘zombies’ have been on the rise since the last financial crisis, the pandemic appears likely to bolster their ranks as more companies seek waivers after taking on unsustainable debts when economies were shut down.

The OECD defines zombie companies as those that have been in business for more than 10 years and have not been able to cover their interest charges from their operating income for three consecutive years.

Kearney studied the files of 67,000 listed companies in 152 countries. He found :
• 7.4% of real estate companies were zombies
• 5.9% of health care
• 5.5% of telecommunications and media
• 5.1% of travel and tourism

Within retail, online retail had a slightly larger share of zombies than its traditional counterparts, potentially due to low profitability from online gamers, according to the report.

Europe
At least 5 issuers are offering debt on European markets on Thursday, with new issue volumes of at least 2.25 billion EU equivalents.
• The Bank of England voted to keep the bond buying target and benchmark interest rate unchanged at a record low of 0.1%.
• Jan Dehn of Ashmore Group Plc is on the verge of leaving the company, ending a 16-year tenure with the fund manager focused on emerging markets.
• The majority shareholder of SMCP, European TopSoho’s, did not repay at maturity 250 million euros of 4.0% bonds exchangeable for SMCP shares.

Asia
Beijing financial regulators have issued a wide range of instructions to the China Evergrande group, asking the ailing developer to focus on completing unfinished properties and paying off individual investors while avoiding a short-term default on dollar bonds.
• Global investors will focus on the China Evergrande Group’s $ 83.5 million interest payment due Thursday on a five-year dollar note.
• The People’s Bank of China injected 110 billion yuan ($ 17 billion) in liquidity with seven- and 14-day reverse repurchase agreements.
• Four Chinese companies offered dollar bonds on Thursday, ending a three-day lull in the Asian credit market amid the holidays and concerns over contagion from struggling real estate giant Evergrande.

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Federal Reserve Chairman Jerome Powell said the United States has little direct exposure to debt from Chinese company Evergrande, but it could impact global financial conditions.
• Powell said the Fed could start cutting back on asset purchases as early as November and complete the process by mid-2022.
• The buyout of medical supplies company Medline Industries Inc. is funded by the largest leveraged buyout loan in three years.
• A market volatility indicator of $ 4 trillion for state and local government debt has fallen to just below the record level set in early January.

This article was provided by Bloomberg News.

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