UK Firms Access Billions In Lifelines From Financial Markets
British companies have taken a staggering £30bn in financial lifelines to help them survive the coronavirus crisis, in another sign that all may not be quite as it seems in the underlying economy. A flurry of new equity and debt has been issued as UK business struggles to survive the economic hit caused by the lockdown. The scale of the support that has been sought has been revealed in a new report by BNP Paribas and New Financial.
Nearly 150 companies have accessed stock and bond markets to help them face the sudden cash crunch prompted by Covid-19 at the end of March into April.
50 firms have raised £25bn in the corporate bond market, while another 100 companies have sold over £5bn of stock.
The list of companies turning to share sales to manage the lockdown has included big British names like JD Wetherspoon and Premier Inn.
These figures are released as the UK Treasury is drafting plans to help struggling firms who are unable to access other sources of funding.
The report draws attention to the role of capital markets in supporting the economy, and the role they could play in supporting any recovery.
Simona Gambarini, an economist with Capital Economics, points out that stock markets often recover before the wider economy.
If the virus is brought under control and life slowly returns to something resembling normality then, she suggests, the recent rally in the markets could have further to run. This will support any broader economic recovery.
Despite the market rally, a decline in the value of shareholder payouts has hit investors hard. Deferrals and dividend cuts have now passed £30bn, according to a report by AJ Bell.
Their study found that the average income from portfolios has declined by 27%. Despite this, some companies including Tesco and Vodafone have committed to maintaining over £12bn of dividends.
These figures reveal an economy standing on a precipice, with widespread uncertainty about what comes next.
This makes it a difficult period for longer-term investors to judge, but can potentially offer real opportunities for short term traders who are able to spot companies who are currently underpriced.