Credit zombies on the rise as real estate firms lead the charge


(Bloomberg) – The living dead in the corporate world are on the rise – and the real estate industry is the one that supports them the most.

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 looks 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 0.1%

  • Jan Dehn of Ashmore Group Plc is on the verge of leaving the company, ending a 16-year tenure at the emerging markets-focused fund manager

  • SMCP’s majority shareholder, European TopSoho’s, failed to repay EU 250 million of 4.0% bonds exchangeable for SMCP shares on maturity

Asia

Beijing financial regulators have issued a wide range of instructions to the China Evergrande group, telling 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 to focus on China Evergrande group’s $ 83.5 million interest payment due Thursday on 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 were offering dollar bonds on Thursday, ending a three-day lull in the Asian credit market amid holidays and concerns over contagion from struggling real estate giant Evergrande

we

Federal Reserve Chairman Jerome Powell said there was little direct US exposure to China’s Evergrande debt, but said it could impact global financial conditions

  • Powell said the Fed could start cutting asset purchases as early as November and complete the process by mid-2022

  • Buyout of medical supplies company Medline Industries Inc. is funded by largest leveraged buyout loan in three years

  • A $ 4 trillion market volatility gauge for state and local government debt has fallen to just below a record set in early January

Bloomberg Businessweek Most Read

© 2021 Bloomberg LP


Comments are closed.