KUALA LUMPUR (June 17): Rising interest rates and softening global economic growth have cast the spotlight on companies with high debt levels. With the normalisation of monetary policies all over the world, the cost of funds is likely to remain higher for longer.

Businesses all across the board had enjoyed a low interest rate environment for years following the Global Financial Crisis when quantitative easing measures undertaken by central banks to stimulate economic activity meant ample liquidity in the global financial system.

Then during the Covid-19 pandemic when lockdowns caused a collapse in economic activities, central banks around the world including Bank Negara Malaysia slashed interest rates to ensure that borrowers ranging from businesses to individuals stayed afloat.

Fast forward to today, in less than two years, central banks led by the US Federal Reserve have ramped up interest rates in a bid to fight soaring inflation brought about by stimulus packages implemented during the pandemic, supply disruption and surging demand as economies reopened.

Bank Negara has raised the overnight policy rate five times since May last year, by 25 basis points each time, to 3%.

The question is, are Malaysian companies over-geared? If so, are they able to service their debts? This is especially pertinent with the expectation of slower economic growth this year.

Companies such as Pharmaniaga Bhd, Capital A Bhd, AirAsia X Bhd and Sapura Energy Bhd have slipped into Practice Note 17 classification for financially distressed companies just after the economy reopened after Covid-19 lockdowns, which begs the question of whether more is to come.

According to data gathered, Tenaga Nasional Bhd remained the most indebted company on Bursa Malaysia with net debt of RM49.4 billion, while Petronas Chemicals Group Bhd had the highest net cash with RM5.7 billion, as of March 31, 2023.

There are also a number of companies that went from net cash to net debt post-Covid as they took on more debt to sustain their operations during the Covid-19 pandemic while some ventured into new businesses to diversify their earnings.

Read the story in the latest issue of The Edge Malaysia weekly.

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