Payments for services surge to record highs on UK corporate debt mountain of $484bn

Data shows the world’s largest listed companies spent a record amount on interest payments on debt last year.

Analysis by asset manager Janus Henderson shows that companies paid $458 billion in interest to banks and bondholders in 2023/24, $89 billion more than the year before.

The London-based group’s latest Global Corporate Debt Index report said rising interest costs were a result of “longer, higher” borrowing rates.

Central banks including the Bank of England, the European Central Bank and the US Federal Reserve raised interest rates several times in succession in 2022 and 2023, then kept rates unchanged as inflation began to ease.

British companies saw their interest payments rise by 29.6 percent and their net debt rose by just 3.2 percent at constant exchange rates to $484 billion.

Mining giants Glencore and Anglo American were the biggest contributors to debt growth, borrowing heavily to fund dividends and share buybacks as their cash flows were hit by falling commodity prices.

Tim Winstone, portfolio manager at Janus Henderson, said: ‘Companies in highly cyclical sectors, such as mining, benefit from unfairly narrow spreads because of the higher risk to their earnings.’

Shareholder returns also helped lift rental company Ashtead Group’s net debt, which stood at $10.7 billion at the end of April, compared with around $9 billion in the same period last year.

By comparison, the UK’s most indebted company, Vodafone, has reduced its net debt by selling a host of assets, including its Hungarian and Ghanaian divisions and a stake in the Vantage Towers mobile tower group.

Total global corporate loans grew by $378 billion to $8.2 trillion in 2023/24, a slower pace than the previous year, which Janus Henderson attributed to higher interest rates.

The investment group calculated that acquisitions drove a large portion of this growth, with large deals in the healthcare sector accounting for a third of total growth.

Recent deals in the sector include Amgen’s $27.8 billion acquisition of Horizon Therapeutics and Roche’s $7.1 billion acquisition of immunology company Telavant.

Another third of the growth in corporate loans came from automakers, whose working capital needs have grown in line with sales.

German giant Volkswagen has become the world’s most indebted company for the first time since 2020, with net debt rising by $32 billion to $196 billion as the company borrowed huge sums to cover its auto financing business.

Toyota followed with a net debt of $179 billion. Ford, Mercedes-Benz and Chevrolet manufacturer General Motors were also among the ten largest borrowers.

At the same time, Google owner Alphabet retained its position as the most cash-rich company for the eighth year in a row, even after spending $170 billion on stock buybacks over the past three years.

Debt service costs reached record highs in all sectors except non-oil energy and in all countries on the Janus Henderson index.

Regionally, Japanese companies posted the fastest growth in interest expenses for the second year in a row, with an increase of 39 percent year-on-year.

This came after the Bank of Japan raised interest rates in March for the first time since 2007, from negative to between 0 and 0.1 percent. However, Janus Henderson noted that debt levels in Japan are “relatively low.”

European companies also saw their interest costs continue to rise, by 28 percent. For American companies, the comparable jump was 23 percent.

Winstone believes companies can generally absorb these costs “without too much difficulty”, but warned that interest charges are likely to continue to rise “for the time being” as old debt matures and is refinanced at higher interest rates.

This is despite analysts expecting large-scale interest rate cuts, including in the UK and the US, as inflation returns to more normal levels.