Worldwide, the number of enterprises with excess debt is increasing. Its characteristic is that the main business profit is less than the interest payable on the loan. In 2021, zombie enterprises accounted for 16%, the highest level since the financial crisis. Due to the long-term monetary easing policy of central banks, the number of zombie enterprises is increasing. Recently, the United States has accelerated the pace of raising interest rates, and many enterprises have been forced to the brink of bankruptcy. The trend of global interest rate hikes has raised concerns that the number of bankrupt enterprises will increase, and people are beginning to realize this economic risk factor.
If an enterprise's EBIT reflecting the profitability of its main business is lower than the loan interest it pays for three consecutive years, and the enterprise has been in existence for more than 10 years, it is defined as an enterprise with excess debt. They are sometimes called zombie enterprises. Nihon Keizai Shimbun surveyed about 24500 listed non-financial enterprises in major countries in North America, Europe and the Asia Pacific region, and found that 3900 enterprises were zombie enterprises in 2021, accounting for about 16% of the total.
Compared with 2007 before the outbreak of the global financial crisis, the proportion of zombie enterprises increased by about 6 percentage points. After the outbreak of the financial crisis, due to the implementation of monetary easing policies around the world, the proportion of zombie enterprises showed an upward trend. Even if the profitability of the main business decreases, because it is less difficult to raise funds from financial institutions and investors, enterprises can alleviate the daily shortage of funds by borrowing.
After the outbreak of covid-19 in 2020, the proportion of zombie enterprises further increased. In order to alleviate the deterioration of business conditions caused by the epidemic, the central banks of various countries have increased their monetary easing policies, and more enterprises are more dependent on debt.
By country and region, Canada has the highest proportion of zombie enterprises, accounting for 32%, followed by Australia (23%) and India (20%). In terms of quantity, there are more zombie enterprises in the United States (606) and the European Union (661). In Japan, many enterprises are cautious about borrowing, and zombie enterprises account for only 4%.
Zombie enterprises account for about 20% in pharmaceutical products, materials and energy, information and communication, food and other industries. In terms of quantity, there are also many zombie enterprises in the electrical appliances and service industries.
Nine out of ten zombie enterprises have an annual revenue of less than US $500million. Their debt scale is much larger than their ability to pay, and they "survive" in the case of poor performance.
Since the beginning of this year, due to the tightening of monetary policies in various countries, coupled with people's concern about the slowdown of economic growth, investors and financial institutions have increased their awareness of avoiding risks, and the financing environment for enterprises has become severe.
According to the data of rover, the scale of low rated corporate bonds issued by global enterprises in the second quarter of 2022 was about US $29.3 billion, a year-on-year decrease of 86%, the lowest quarterly value in recent 11 years. Banks' financing of low rated companies also decreased by 20% year-on-year.
The phenomenon of enterprise bankruptcy began to appear. Revlon, a well-known American cosmetics company, filed for bankruptcy protection in mid June. Affected by factors such as intensified competition, Revlon's EBIT has been lower than its interest expense for five consecutive years since 2017. After the outbreak of COVID-19, problems such as supply chain chaos worsened Revlon's situation.
Allianz trading company predicts that the number of bankrupt enterprises in the world will increase by 26% in 2023 compared with 2021. Maxim Le melle, an analyst at the company, warned that in view of the deterioration of the business environment in the future, the rise in interest rates may cause corporate sustainability problems.
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