Service funds soar to file ranges on UK corporations’ $484bn debt pile

The world’s largest publicly-traded companies spent a record amount on debt interest payments last year, data suggests.

Analysis conducted by asset manager Janus Henderson revealed that firms paid $458billion of interest to banks and bondholders in 2023/24, $89billion more than the previous year.

In its latest Global Corporate Debt Index report, the London-based group said the soaring interest bills were due to the effect of ‘higher for longer’ borrowing rates. 

Rising costs: Asset manager Janus Henderson revealed that firms paid $458billion of interest to banks and bondholders in 2023/24, $89billion more than the previous year

Central banks, including the Bank of England, European Central Bank and the US Federal Reserve, hiked rates on multiple successive occasions during 2022 and 2023 before holding them steady as inflation started moderating. 

UK businesses saw interest costs swell by 29.6 per cent and their net debts rise by just 3.2 per cent at constant exchange rates to $484billion.

Mining giants Glencore and Anglo American were the biggest contributors to debt growth, having borrowed heavily to fund dividends and share buybacks while their cash flow was hurt by slumping commodity prices.

Tim Winstone, portfolio manager at Janus Henderson, said: ‘Companies in highly cyclical industries, like mining, are enjoying unjustifiably narrow spreads given the higher risk to their earnings.’

Shareholder returns also caused net debts to jump at rental equipment firm Ashtead Group, hitting $10.7billion at the end of April, compared to around $9billion at the same time last year.

By comparison, the UK’s most indebted business, Vodafone, reduced its net debts by selling numerous assets, including its Hungarian and Ghanaian divisions and a stake in phone masts group Vantage Towers.

Digging: Mining giants Glencore and Anglo American were the biggest contributors to UK corporate debt growth as they borrowed heavily to fund dividends and share buybacks

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

The investment group calculated that takeovers drove much of this increase, with major deals in the healthcare sector accounting for one-third of total growth.

Among the industry’s recent deals include Amgen’s $27.8billion purchase of Horizon Therapeutics and Roche’s $7.1billion takeover of immunology company Telavant.

Another third of corporate borrowing growth came from vehicle manufacturers, whose working capital needs have risen in tandem with their sales.

German giant Volkswagen became the world’s most indebted firm for the first time since 2020, increasing net debts by $32billion to $196billion as it borrowed huge sums to cover its car finance operation. 

It was followed by Toyota, with net debts of $179billion, while Ford, Mercedes-Benz and Chevrolet maker General Motors were also among the top ten largest borrowers.

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

Every sector, except for non-oil energy, and all countries in Janus Henderson’s index had their debt service costs reach record levels.

Regionally, Japanese firms had the fastest expansion in interest bills for the second consecutive year, with a 39 per cent year-on-year increase.

This came after the Bank of Japan hiked interest rates in March for the first time since 2007, from negative territory to between zero and 0.1 per cent, although Janus Henderson noted that debt levels are ‘relatively small’ in Japan.

European companies additionally saw interest bills continue surging, climbing by 28 per cent, while the comparative jump for US businesses was 23 per cent.

Winstone believes companies are mostly ‘absorbing these costs with little difficulty’ but warned that interest bills will likely continue growing ‘for the time being’ as old debts begin maturing and being refinanced at higher rates.

This is despite analysts expecting widespread interest rate cuts, including in the UK and US, as inflation returns to more normalised levels.