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By APD writer Alice
The COVID-19 outbreak sparks cash crunch across Asia-Pacific and fears of widespread bankruptcies of regional companies after years of low-interest rates prompted many to gorge on trillions of dollars of debt.
According to the rating agency Moody’s, in the years following the 2008 global financial crisis to 2019, the volume of outstanding corporate debt issued by companies in the region doubled to US$32 trillion.
Investors fear the cash crunch resulted from the coronavirus outbreak will cause a wave of bankruptcies in industries from aviation to retail.
“We are seeing an immediate uptick in inquiries from firms seeking advice on how to prevent a potential insolvency event,” said John Park, a Brisbane-based managing director at restructuring firm FTI Consulting.
Among the areas of particular concern is China’s property market. As of February, the industry owed a total of US$647 billion in bonds denominated in local and hard currencies, shows Dealogic data. Sales and construction start both fell more than 20 percent in the first two months compared to a year ago, according to Plenum China.
Evergrande, one of the country’s largest developers, owes more than US$100 billion. The company has issued bonds at coupons of up to 13 percent, level analysts say indicates anxiety over its creditworthiness.
Tahoe Group, a smaller developer, has about $730m in US dollar bonds maturing over the next 12 months. But it has not told investors how it plans to repay them.
The pandemic has also caused a funding squeeze in Thailand, where companies have come under pressure as plummeting tourist numbers hit the economy.
Fitch Ratings last week said the asset quality and earnings of the country’s banks would be “significantly weaker” this year.
In Australia, the outbreak has prompted a scramble by some companies to raise equity as they struggle with debt repayments. Webjet, a travel company, and oOh! media, an advertising business, said they would attempt an emergency equity raising.
Some Australian companies are also considering invoking so-called safe harbor laws that give directors at insolvent businesses legal protection during restructuring proceedings. Meanwhile, sound businesses are drawing down all available liquidity lines or taking on new loans from credit funds with greater risk appetites.
A number of investors have started sifting through the debt rubble for opportunities. But adventurous private investors’ efforts are not enough to solve Asia-Pacific’s corporate debt issues.
According to Hamish Douglass, chairman and co-founder of Sydney-based fund manager Magellan Financial Group, the coronavirus-related shutdown would prove fatal for many debt-laden companies.
“Only governments can prevent these businesses from failing,” he said, citing New Zealand, which recently bailed out its national airline with a NZ$900 million (US$525 million) loan.
(ASIA PACIFIC DAILY)
