Global corporate debt falls for first time in eight years

Global corporate debt levels have fallen after eight years of continuous gains, according to Janus Henderson.

Included in the latest annual Janus Henderson Corporate Debt Index, global corporate net debt has fallen by 0.2% on a constant-currency basis between 2021 and 2022 to $8.15 trillion.

The index also revealed that just over half of companies around the globe (51%) have managed to reduce their debts. Those situated outside the US are more likely to have reduced their indebtedness.

Janus Henderson anticipates net debts will fall by $270 billion (-3.3%) on a constant-currency basis to $7.9 trillion by 2023.

One of the sectors that has seen the largest shift in debts is the energy sector with oil and gas producers managing to cut debt by $155 billion, which is down by one-sixth year-on-year.

A shortage of components saw the car manufacturing industry restrict overall sales, which led to a higher margin mix of deliveries. This reduced the need to fund consumer finance programmes.

For those based in the UK, company debts fell by 10% on a constant-currency basis since 2021 to $521 billion.

Seth Meyer and Tom Ross, fixed income portfolio managers at Janus Henderson, said: “Companies around the world wisely opted to bridge borrowing the gulf which opened in global economic activity by the pandemic.

“These debts were intended to be temporary – and so they were, as the increased focus on reducing short-term debts over the last year proves. We expect this decline to continue.

“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.

“There is no doubt that a bear market is an uncomfortable place for investors, but for new capital looking at corporate bonds, yields are far more attractive than in recent years.”

Janus Henderson revealed on July 4 that it had taken on a four-man emerging market debt (EMD) team from Danske Bank.

© 2022 funds europe

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