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FROM EIR DAILY ALERT


How Many Zombie Companies Are There, Actually, in Europe?

Jan. 15, 2018 (EIRNS)—The news reports about Carillion Construction Company’s collapse into liquidation in Britain, should be a reminder that the Bank for International Settlements (BIS) estimated that 10% of all European firms are “zombie companies”; and the British accounting association known as RRR last year estimated the figure at 25% in the U.K. Zombie companies are firms which have no foreseeable hope of paying their debts, because their cash flow does not even cover the interest they owe, so they need more debt to pay interest. Jared Kushner’s 666 Corp. is a well-known example. The IMF, in its Global Financial Stability Report 2017, guessed that 20% of all U.S. corporations could become zombies with any marked rise in interest rates.

Now two significant companies have collapsed in Europe in the past 30 days. The first, Steinhoff Group, is a South Africa-based retail conglomerate which is not yet formally in bankruptcy, but has been melting down since December and trying to sell off units to cover margin calls. Its debts total about $25 billion, and involve a number of major banks.

Carillion is not a conglomerate and has much less securities debt—less than $2 billion in bonds. But as a fairly large construction company, operating internationally, it has billions in short-term project loans and a lot of joint ventures (involving joint borrowing) with other construction companies, which will now feel debt pressure as a result of its liquidation.

And bond market interest rates are rising.