Corporate Asia-Pacific Debt Sinks To Multi-Year Lows, Bucks Global Trend

Tom Burroughes

17 July 2023

While companies around the world took on $456 billion of net new debt in the 2022/2023 financial year to a record $7.8 trillion – raising questions about how to handle higher interest rates – Asia-Pacific companies’ debt fell from a year before, figures show.

Corporate debt in Asia-Pacific ex Japan fell to multiple year lows, according to the latest annual Janus Henderson Corporate Debt Index. For Hong Kong, Singapore, Taiwan and Australia, debt fell 8.8 per cent on a constant currency basis to $122 billion in 2022 to 2023.

With interest rates rising around the world, the effect this will have on corporate balance sheets, growth and investment returns is significant. Such figures may help feed into the asset allocation positioning of wealth managers.

“The exact path for the global economy and corporate earnings may be very unclear, but the end of the rate-hike cycle and the return of ‘income’ mean there is a lot for corporate bond investors to be happy about,” James Briggs and Michael Keough, fixed income portfolio managers at , said. “Debt levels may have risen but they are very well supported, and the global economy has remained remarkably resilient.”

Hong Kong is down
Corporate net debt fell in Hong Kong for the second year running, down 6.2 per cent on a constant-currency basis to its lowest level since at least 2014/2015. Strong cash flow from shipping company Cosco and from oil producer CNOOC were the biggest contributors to the decline, though more companies (57 per cent) added to their borrowing than reduced it. Hong Kong’s collective corporate net debt/equity ratio of just 8.6 per cent is one of the lowest in the world, Janus Henderson said.

In Singapore, corporate debt rose for companies.
A reduction in the cash position of consumer internet company Sea Limited – thanks to ongoing losses and capital expenditure – was the biggest driver of rising corporate debt in Singapore, among the very few companies which are in the index, the report said.

Taiwanese companies held net cash on their balance sheets.

Nine of the 13 Taiwanese companies in its index have net cash on their balance sheets, of which two thirds is owned by Taiwan Semiconductor. This company made the greatest contribution to the 24.4 per cent constant currency increase in Taiwan’s corporate net cash position in 2022/23, along with shipping company Evergreen Marine which benefited from global supply-chain disruption during the pandemic.

The oil sector made the largest reductions in its debts in Australia. More than half the companies in the index in Australia repaid borrowings in 2022, with the oil sector making the largest reductions in its debts. Net debt fell by one sixth on a constant-currency basis (-18.0 per cent).

Squeeze in China
In mainland China, debts rose by a third on a constant-currency basis, concentrated in a few companies. China Petroleum & Chemical was the biggest contributor to the increase. As a downstream operator, it suffered margin contraction owing to high oil prices and distributed a large dividend declared on the previous year’s profits. A squeeze on cash flow affected China State Construction Engineering among a number of other large companies. Petrochina’s upstream bias meant that it saw a big fall in its borrowings.