The lesson that too much debt is dangerous has sunk in.
But for many companies, the corollary proposition, that too little cash
is a killer, seemingly hasn’t. If there’s one thing investors ought to
remember heading into the eighth year since the financial crisis, it’s
that without healthy cashflows, balance sheets won’t stay balanced for
long.
Trading house Glencore is a prime example. As commodity prices
continued to plunge in 2015, its net debt of around $30 billion, which
investors had previously tolerated, started to look scary. The shares
went into freefall. As cashflows dwindled, so did the amount of debt
investors would stomach, forcing boss Ivan Glasenberg to hack the
dividend, sell assets, cut production and target reduced borrowings of
$18 billion.
Weak commodities will wreak more havoc, but rising U.S. interest
rates could make matters worse. That’s especially true for emerging
markets, which have loaded up on U.S. dollar debt. A currency mismatch
is one factor weighing on Brazilian oil major Petrobras. Borrowings in
U.S. dollars by non-financial companies had reached $2.3 trillion in
developing countries by the end of June, according to the Bank for
International Settlements. Mexican, Indonesian and South African
borrowers have all roughly doubled their dollar debts since 2009.
No comments:
Post a Comment