German companies are set to pay the price for years of dependence on Russian gas, according to a new study indicating that companies in the country face skyrocketing bills as Moscow limits energy supplies.
German companies are most at risk of default compared to their European counterparts, according to the Weil European Distress Index, which looked at data from more than 3,750 listed companies across Europe.
Business distress levels in Germany are at their highest since July 2020, when the world was in the midst of the global pandemic.
As European countries face a cost of living crisis caused by supply chain issues and Russia’s invasion of Ukraine, Germany has been particularly hard hit.
Weil, Gotshal & Manges, the US law firm that compiled the index, cited Germany’s reliance on Russian natural gas as “particularly problematic” for its economy.
On Sunday, the German government announced it would restart mothballed coal-fired power plants to preserve energy supplies until next winter in response to Russia’s cut in natural gas exports, a move that has raised the specter of severe energy shortages.
Gazprom, the Moscow state-backed energy giant, told European capitals last week that gas deliveries through a key pipeline would be cut by 40% in response to international sanctions. Gazprom says the pumping equipment needed for the pipeline is stuck in Canada.
Over the weekend, Berlin announced new emergency energy laws that will see Germany dramatically increase its use of coal to generate up to 10 gigawatts of electricity for up to two years.
The switch to using the more carbon-intensive fuel comes despite the Bundestag’s pledge to completely phase out coal by 2030.
Robert Habeck, Germany’s economy minister and Green Party member, said the decision to fire coal-fired power stations was “painful, but pure necessity”.
In February, Mr Habeck said that Gazprom, which operates midstream energy infrastructure in Germany, had “systematically emptied” the country’s gas storage facilities as war approached.
Weil, Gotshal & Manges said the sharp rise in corporate distress across Germany was due to deteriorating investment metrics, lower valuations and a continued squeeze on profitability – all exasperated by rising energy costs.
“If this upward trajectory continues, we expect to see increased pressure on liquidity and further tightening in credit markets as some companies struggle to access funding and eventually face defaults,” he said. said Neil Devaney, a partner at the London-based restructuring firm. .
During the two most recent crises – the global financial crisis and the Covid pandemic – the Weil European Distress Index has been a reliable early warning indicator of future defaults.
A separate study by German insurer Allianz predicts the number of German insolvencies will rise by 10% to 16,130 cases next year. Moreover, German companies that have recently gone through bankruptcy proceedings have the highest level of debt since 2009.
In 2021, total debt stood at €48.1bn (£41.2bn) – a new high since the all-time high of €73bn in 2009 – but the average amount of debt per bankrupt company was 55% higher, at 3.4 million euros compared to 2.2 million euros.
“Last year, the drop in the total number of failures did not translate into a drop in the severity of failures,” said Maxime Lemerle, analyst at Allianz. “In fact, total debt to creditors recorded a further increase in 2021 for the third consecutive year.”
According to Allianz, after two years of declines, global business bankruptcies are expected to rebound 10% in 2022 and 14% in 2023, approaching pre-pandemic levels.
Previously, businesses were backed by state support, but the insurer says state-backed loans are likely to be “more targeted and limited this time around”.
Weil said European governments must focus on policies that spur economic growth or there will be a surge in corporate restructuring, especially in sectors such as retail and consumer goods.
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Source: www.telegraph.co.uk
This notice was published: 2022-06-21 05:00:00
