UK Corporate Debt Breaks Record £390 Billion
(26 June 2018 - United Kingdom) Amongst listed British companies net debt has jumped to a record high of £390.7b in 2017/18 data from Link Asset Services shows.
Balance sheet analysis was conducted on 440 UK listed entities by the largest UK share registrar which provides services to over 1,300 enterprises across the UK.
Increased borrowing has been subdued in the immediate aftermath of the 2007 Global Financial Crisis (GFC) with the bulk of increased new credit activity taking place since 2016, driven by the need to fund dividends despite low profitability in the prevailing low interest rate environment.
Despite declining retail spending and rising overhead costs impacting the retail sector adversely, energy and oil company debt expanded at the fastest pace rising almost 500 percent since FY 2008. Shell and BP are among the most heavily indebted companies, accounting for £1 in every £7 of all net UK listed company debt in 2017/18.
During the past two years, profit performance was disappointing across many sectors, but investment requirements continued, and most companies strived to maintain dividends. CEO Justin Cooper commented “It seems we may now have seen peak indebtedness. Two years ago, corporate borrowing soared higher, gearing levels approached those seen just before the credit crunch, and company profitability was still in the doldrums”
“Now, healthy global growth means higher profits. That has both brought gearing levels down, and means that interest costs and dividends are much more comfortably covered by profits.”
Corporates were show to now be less dependent on shorter term credit facilities than at any time since 2007. Short-term debt accounts for 18 percent of total borrowings, compared to for 26 percent in 2008-09. Importantly middle market and institutional enterprises in the Top 100 are now more highly leveraged than smaller sized listed entities, reversing the gearing trend exhibited in the lead up to the GFC.
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