Asia Defies Dire Predictions of a Huge Spike in Bankruptcies
(Bloomberg) -- A feared wave of corporate bankruptcies has yet to materialize in Asia, due to a lot of help from policy makers.
If anything, the number of companies going out of business has decreased from last year in countries such as Japan and Singapore. That suggests that official measures to prevent corporate failures, in tandem with global stimulus of some $12 trillion, may be bearing fruit.
Lockdowns worldwide prompted by the coronavirus outbreak have wrecked economic growth and led to bankruptcies of firms from Brooks Brothers Group Inc. to Hertz Global Holdings Inc. and Virgin Australia Holdings Ltd. But while Covid-19 has devastated profits and forced some firms to lay off staff, funding provisions and other assistance from policy makers appear to have prevented many struggling companies from closing down for good.
That’s happening elsewhere in the world too. In the U.S., Goldman Sachs Group Inc. says the number of bankruptcy filings has been lower than expected due in part to federal relief. In Europe, corporate failures declined in the U.K. and Sweden in the third quarter, though Germany is bracing for an increase in insolvencies after a moratorium to help companies survive the outbreak ended.
Here are key developments across Asia:
Bankruptcies declined in the six months through September to the lowest since 1990, as government and central bank measures helped support troubled firms. The number of cases fell 9.4% versus the same period last year to 3,858 cases, according to data from Tokyo Shoko Research.
Still, restaurants and hotels have been hit hard. And the virus-related policy measures will eventually expire, with the government’s ramped-up furlough program running through the end of the year, while the Bank of Japan’s loan facility program is set to last through March.
The government suspended bankruptcy filings from the end of March. Only 76 cases filed before the moratorium began were admitted into the resolution process in the April-June period, compared with around 300 to 600 usually in a quarter. Unprecedented stimulus steps including a 21 trillion rupee ($285 billion) rescue package have helped borrowers stay afloat.
But struggling small businesses need to repay mounting debt after a loan holiday ended in August. And unemployment presents a serious challenge: more than 4 million young Indians have lost their jobs due to Covid-19, mostly in the construction and farm sectors, according to a report by the International Labour Organization and the Asian Development Bank.
The nation’s corporate default figures suggest a turnaround in companies’ financial health: missed debt payments in the domestic market have decreased nearly 18% so far in 2020, after two straight years of record defaults.
That was partly a result of market interest-rate cuts and provision of abundant cash by authorities, as well as their encouraging distressed borrowers to take steps such as delaying bond repayments and debt swaps to avoid defaults. The world’s second-largest economy continued to recover in the third quarter with consumer spending accelerating in September.
The government has embarked on relief spending of more than HK$310 billion ($40 billion), to fight what economists surveyed by Bloomberg expect to be a record economic contraction this year. That’s helped prevent worse fallout, even as many companies in the retail and service-dependent economy have stumbled.
Corporate failures are usually handled through an insolvency process. Petitions for compulsory winding-up of firms peaked at 68 in May, the most for any month since 2009, according to official statistics. Such filings this year through August total 275, the most since the same period in 2016.
Lenders have been providing payment deferrals since April for small- to medium-size businesses. They’ll extend debt relief beyond the initially-scheduled year-end with the time periods depending on how much help industries need, according to the Monetary Authority of Singapore.
The efforts appear to be paying off. Applications filed for corporate liquidations fell to just four in August, the lowest since at least 2015, according to official data. Individual bankruptcy filings are also decreasing, hitting a record-low 43 in May after jumping to 462 in March. The number in August was 131, below the average of 257 since 2004.
Bankruptcy filings this year in the Central Jakarta district court, one of the nation’s main venues for those matters, have been in line with 2019 figures, at 378.
Indonesia unveiled $10 billion in financial support to a dozen state-owned companies in May, and the government has pledged to inject additional capital of around 37 trillion rupiah ($2.5 billion) for several other companies next year.
Bankruptcies in 2020 also largely stayed around their levels a year earlier, at 1,492 through September compared with 1,423, according to court data.
The country created a 40 trillion won ($35 billion) fund in May to prevent companies from collapsing in key industries including aviation and shipbuilding. The central bank has kept interest rates at a record low but has steered clear of full-scale quantitative easing after recent export and inflation data suggested the economy has passed the worst of the slump.
©2020 Bloomberg L.P.