European companies rated and monitored by S&P Global Ratings will have to repay a debt estimated at €4 trillion by 2025, according to an analysis published by the American rating agency. The peak repayment will be reached in 2022, with an amount of €807 billion.
Several debt issuances carried out in the first half of 2020 have contributed to a 5% increase in the amount of European corporate debt maturing in 2025. “Following the recent issuance, debt maturities for 2025 saw the largest increase, up 17% (to €683 billion) since the beginning of the year,” explained S&P Global Ratings.
However, the rating agency explains that 84% of the expected repayments concern a good quality debt for investors. But S&P Global Ratings also noted that an amount of €644.3 billion is classified in the speculative category, meaning the repayment could not be done normally. Moreover, the analysis of the European economic outlook is rather pessimistic.
According to the International Monetary Fund (IMF), the gross domestic product of the eurozone will be down 10.2% in 2020 and the expected recovery of 6.4% in 2021 will not make up for it. Positive indicators are expected to be observed on a sustainable basis by 2023. Another aspect is that if interest rates finally start to rise again, it will be difficult for these companies to refinance their debt.
The analysis of corporate or government debt is important because usually, the investors in this debt are investment or pension fund managers who have promised their clients a specific return at the end of a certain period. With a debt market dominated by low yields and high default risks, the ability of several million people around the world to survive is at risk.
For the investment and asset management arm of the German insurer Allianz, the European Central Bank will have to intervene. “Faced with a high degree of uncertainty about the evolution of the covid-19 pandemic, low inflation and the macroeconomic outlook, constant support for monetary policy and the maintenance of an accommodating bias are indispensable and it [the ECB] stands ready to do more,” Boursorama said in a statement.
(Ecofin Agency) -Idriss Linge