The study analyzed debt in more than 9,000 large companies in the G-20 names, and presented "the looming global debt picture" of competition for capital, which "will intensify as over $11.5 trillion of financing will be due in the next five years." That circumstance likely will limit the availability of debt capital, the report said, and the public sector's deficits will only increase that capital-markets competition and volatility.
"Capital is now a powerful competitive asset and companies who can raise it quickly have a clear advantage," Ajit Kambil, global research director of Deloitte's CFO Program said. "Not only are we at an inflection point on interest rates, but economic recovery is constrained by a growth in demand within developed economies."
Kambil said one of the lessons of the study is that CFOs of companies "with significant leverage...need to consider moving with urgency to convince boards and CEOs to recapitalize." Those cash-rich concerns should examine strategies for using the company's strength to raise capital. "This can represent a significant competitive advantage for large companies with low leverage over their smaller competitors," he said.
The study employed surveys of more than 1,000 CFOs and other financial executives last August and September, and interviews with experts.
Another finding of the study was that CEOs and CFOs whose large companies have solid balance sheets have good, low-cost access to bank loans and debt and equity markets, and should take advantage now, before interest rates rise. Their situation contrasts with high-leveraged companies, which will be struggling to find ways of improving their balance sheets.
The study suggested that peak demand for refinancing debt is approaching, and new regulations and continued bank and market failures likely will continue to limit the debt capital that is available.
Deloitte, however, found that the limits of the economic environment and rising interest rates aren't stopping finance chiefs from being optimistic about being able to increase their debt-servicing capacity. Many CFOs said they would use cash reserves first for that purpose. Strong cash flows and low leverage will give companies more strategic options to build shareholder value through acquisitions, share repurchases, dividends, and organic growth, the study suggests.
Robert N. Campbell III, vice chairman and U.S. State Government leader for Deloitte LLP, noted that U.S. debt owed to China and other third parties has grown to more than 60% of GDP. "If we stay the course we're on, the U.S. debt will exceed 100% of GDP by 2020 and 200% of GDP by 2030, and interest alone on the U.S. debt will reach $1 trillion by 2020," he said. "The rising sovereign government debt is likely to lead to rising interest rates, inflation, and a diminished confidence in the U.S. dollar."
Such a situation would challenge companies as they face long-term cap-ex decisions, he noted, while higher government borrowing possibly would add to the competition for capital as companies try to refinance short-term debt.
In other findings, the study determined that, even with $9 trillion in cash reserves across the 9,000 large companies examined, those reserves are unevenly distributed, and are mainly found in the financial services industry, with only about $2 trillion of cash outside financial institutions. Most of the maturing debt is found in the Americas, with $5.7 trillion of the $11.5 trillion total globally. Not surprisingly, Asia has the lowest debt level -- although the highest share of outstanding debt maturing, with 69% set to mature in the next five years.
CFO surveys have been showing recently that 62% of finance chiefs plan to maintain or increase their debt levels over the next three years, Deloitte said, and half plan to use cash reserves to pay down debt.