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Melbourne, February 5, 2018 -- the improvement of recent profitability and financial indicators of global enterprises is difficult to offset the huge credit risk caused by high leverage. The S & P global rating is presented in the 2018 global corporate leverage trend report released today.
"The debt level is so high that the default rate is very low, and the stability situation may be unsustainable," said Ceng Yongxing, a credit rating analyst at standard global rating. "Such a high leverage means that companies will be more sensitive to the increase of financing costs and the reduction of financing channels. The process of normalizing the bond market's sharply re pricing or faster than expected money market interest rate may affect the credit status of the global enterprises and trigger a new round of default cycle.
It may be supported by the recent Trump tax reform for US businesses. The continuous improvement of global corporate profits and cash flow is expected to reduce corporate leverage in 2018, but the overall leverage level will remain high.
In the past 2011-2017 years, the ratio of global non-financial enterprise debt to GDP increased by 15 percentage points to 96%. We estimate that in the global 13000 companies in the sample, 37% can be classified as "high leverage" category in 2017 (i.e. debt to income tax break TanQian profit ratio of more than 5 times), 5 percentage points higher than in 2007. The positive situation is that global profit growth has caught up with debt growth since 2016, ending the situation that has been lagging behind in the previous years.

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