HSBC Says Pandemic May Cause Share Suspensions, Asset Writedowns

(Bloomberg) --

The business impact from the coronavirus outbreak will stretch far beyond supply chains and employee safety: It could result in asset writedowns and even trading suspensions, according to HSBC Holdings Plc.

That’s just some of the possible fallout from the global pandemic, HSBC analysts, led by Wai-Shin Chan, said in a sweeping report on how the virus might impact environmental, social and governance, or ESG, topics.

Travel restrictions could limit the work of external auditors, leading to incomplete reports, late filings or even missed reporting deadlines. That might in turn result in fines, suspension of shares by listing authorities and breaches of debt covenants, the analysts said.

Companies “may attempt to use balance sheets to temporarily shore up performance and cash,” but “each company will have an individual limit on how much scope it might have to do so,” the analysts said. They also said they expect to see writedowns in areas such as goodwill, intangibles, and investments as “balance sheets will be under pressure.”

Concerns of a global recession are rattling financial markets, forcing consumers to stay home, sharply curtailing business activity and prompting central bankers around the world to take action to mitigate the potential damage. With the risk of recession mounting, the Federal Reserve slashed its benchmark interest rate by a full percentage point to near zero on Sunday and promised to boost its bond holdings by at least $700 billion.

The virus isn’t just a challenge for central bankers, it may test investors that pay attention to ESG, many of whom have never faced a bear market. The HSBC analysts said in the short-term the immediate focus will be on virus response and market volatility, not ESG issues, though that may change over time.

In fact, one positive from the coronavirus outbreak could be that investors of all stripes, not just ESG investors, will ask more tough questions of companies and seek greater disclosure on their strategy and resilience.

“With few signs of the outbreak abating and the spillover impacts across almost all parts of the global economy, we believe there will be a lot of soul searching and reconsideration of the robustness of existing business models and necessary infrastructure,” said the analysts. “We appreciate that the immediate focus for investors will be on market volatility and that the focus of businesses is on the continuation of products and services. However, over time, we think questions will emerge over how resilient businesses may be to future shocks – ESG or otherwise.”

The environmental impact of coronavirus could be mildly positive, the analysts wrote. A large reduction in air travel has significantly reduced greenhouse gas emissions, as has the sharp increase in numbers of people working from home. Still, fewer commuters hasn’t resulted in fewer trains and buses operating, and more people working at home means the usage of heating and air conditioning has risen.

To contact Bloomberg News staff for this story: Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

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