UK corporate debt soars to all-time high after years of low interest rates
The debt of the UK’s public listed companies (PLCs) has hit an all-time high after years of low interest rates and continued pressure to return money to shareholders.
The Link Asset Services UK PLC debt monitor shows UK listed company debt of £390.7bn, up 69 per cent from the debt low point of 2010-11, an increase in debt of £159.6bn.
Most of that debt increase has been in the last three years, with companies piling up an additional £122.6bn of debt in that period.
Over the same period UK PLCs paid their shareholders £263bn in dividends, despite pressures on profitability.
Read more: Brexit driving UK corporates to flog off under-performing branches
Justin Cooper, chief executive of Link Market Services, said: “The economic recovery since the credit crunch has been slow, but very long, and some commentators suggest the cycle may be drawing to a close.
“Total borrowing may continue to rise as it’s a vital part of the investment financing-mix, but gearing, or the burden of debt is on the wane. Investors may prefer to see UK PLC focus on reducing gearing further to provide itself more breathing space in the next global downturn.”
At the credit crunch UK PLC debt-to-equity ratio, the ratio of borrowings versus the value of shareholder capital, hit 89 per cent.
Post-crunch that high level of gearing reduced sharply to just 64 per cent, but began rising again after 2011-12 when market conditions improved.
Read more: These are the 10 UK companies with the best corporate governance
It peaked in 2015-16 at 83 per cent, but has since begun to wane, even though absolute debt has risen, and now stands at 73 per cent.
Tobacco company British American Tobacco has the most debt of any UK listed company following its acquisition of US giant Reynolds. Its £45.4bn of net loans account for £1 in every £11 of UK PLC borrowings.
Housebuilder Persimmon is sitting on the most cash, currently with a net cash position of £1.3bn.