KUALA LUMPUR: Digi.com Bhd and AirAsia Group Bhd are among Asia Pacific companies with the highest leverage in the region.
According to Bloomberg, Digi has total debt to total equity of 796 per cent, putting its as the third highest.
The telco trails behind NIO Inc which boasts 2,354 per cent, and gaming-based Wynn Macau Ltd, with 1,421 per cent.
AirAsia has a debt-to-equity ratio of 437 per cent, with Korean Air Lines Co (662 per cent) Kyushu Electric Power
Co (504 per cent) and Cosco Shipping Development Co (463 per cent) just ahead of the budget carrier.
Bloomberg said the financial gearing of Asia Pacific’s largest companies had risen for a second year following a period of deleveraging, but market participants did not see cause for alarm.
The median total debt-to-total equity for non-financial companies in the MSCI Asia Pacific Index reached about 44 per cent in the first nine months of 2019.
That is slightly higher than the 41 per cent seen in 2007, before the global financial crisis.
Still, for many analysts, a low interest-rate environment, healthy cash balances and a favourable global economic outlook provide reassurance.
Some observers say that limiting the use of debt purely to rein in gearing ratios may prove to be counterproductive for companies with healthy balance sheets. It’s not a good idea to forgo attractive projects and lose them to competitors just “for the sake of controlling your net gearing ratio,” the wire service quoted Felix Lam, who manages Asia Pacific equities at BNP Paribas Asset Management in Hong Kong.
In fact, gearing levels that are too low can be negative.
Japan, which has undergone a long period of deleveraging since the bursting of its bubble economy in 1989, is a case in point.
The country’s return on equity has “stagnated at a historically low level since the 1990s,” Oxford Economics said in a November report, “because financial leverage has declined, while the corporate sector’s saving surplus has persisted for two decades.”
And while leverage has risen for Asian companies overall, it is still far behind that of their American counterparts, with members of the S&P 500 Index clocking a median debt-to-equity of 92 per cent.