Toyota Motor Company is the most indebted company in the world. That’s according to an analysis of StockApps data on the state of global corporate debt. The site concludes that in the 2021/22 financial year, Toyota’s debt stood at $186 billion. This number is $1 billion more than the next one.
Edith Reads, chief financial officer of StockApps, weighed in on the data. She argues that Toyota’s debt is good and even necessary debt. She suggested that the company’s accumulation of this level of credit is consistent with its forward-looking nature. Here’s what she said about the development:
“It’s not uncommon for Toyota to have such colossal debt on its books; most global giants do. Debt allows companies to reinvest in their activities and develop them further. The key is to keep that debt viable, and Toyota has done well on that front. As a player in a highly competitive sector, R&D constitutes an important part of Toyota’s budget. This and other expansion needs make this debt a necessity.
Edith argues that the revelation of Toyota’s indebtedness is good news for investors. Measured against company profits, it shows that she is running a healthy business. It is a clue for current and potential Toyota investors. In addition to indicating the viability of issuing companies, corporate bonds are one of the most lucrative investment tools.
So how does Toyota’s debt stack up against that of other global companies?
Stockapps analysis shows that the 10 most indebted companies in the world accounted for 17% of corporate net debt. That’s a combined vote of $8.1 billion. In addition, the ten come from the automotive and communication sectors.
German automaker Volkswagen (VW) is the second largest borrower among global companies. As of this writing, VW’s debt is $185 billion. The company fell one rung lower on the list compared to the 2020/21 financial year when its debt was $200 billion.
In addition, the American communication giants, AT&T and Verizon take 3rd and 4th places. The former owes its creditors $182 billion, up from $173 billion last year. Meanwhile, the latter’s debt level stands at $174 billion after jumping $127 billion in 2020/21.
These give way to German companies Deutsche Bank ($153 billion) and Mercedes ($109 billion), which take 5th and 6th place. Their compatriot BMW came in 9th, ahead of $96 billion. The rest of the top 10 includes Electricite de France ($104 billion), Comcast Corp ($98 billion) and Charter Communications ($92 billion).
What is the outlook for global corporate debt?
Available data indicates that global companies are reducing their exposure to debt. This is largely due to their recovery from the economic shocks of the coronavirus pandemic. Corporate debt soared at the height of the pandemic, but containment measures have returned to normal around the world.
As COVID-19 ravaged the world, businesses took out loans as a palliative to protect against its aftershocks. However, the gradual reopening of economies in 2021/22 has released pent-up demand. As a result, companies rebounded strongly on the earnings side, which translated into healthy results.
Additionally, the post-COVID-19 M&A boom has run out of steam. Biting inflation and geopolitical uncertainties left companies with surpluses, easing pressure for corporate borrowing.
Corporate debt will continue to decline in 2023
All signs point to a continued decline in corporate loan absorption. Weak growth in the global economy has seen some countries slip into recessions, which has heightened the cautiousness of many businesses. Again, consumer spending is falling due to sharp increases in product prices, which affects corporate margins.
Meanwhile, interest rates have soared, raising the cost of corporate debt. This coincided with monetary policy tightening by many central banks in major economies. This action will most likely depress economic activity, and a combination of these factors will drive corporate debt down to around $7.9 billion by mid-2023.