According to a BCG i.e. Boston Consulting Group report, one in five European companies will face significant restructuring pressure this year due to increased financing costs and weakened consumer demand. Especially in Germany, Austria, and the Nordic countries.
High Exposure to China, Russia, and Energy-heavy industries
About a third of German and Austrian companies also face what BCG calls “transformation pressures,” or early signs of declining productivity and financial stability that require improvement, said the consulting firm in a presentation on June 3, 2024. In Europe, the corresponding figure is around 21%, compared to 14% in 2023.
The firm collected financial data on more than 2,000 European public companies using company files and interviews. The pressure from Austria and Germany is partly due to “the structure of the sectors,” said Jochen Schönfelder, BCG, Senior Partner, Cologne. “One reason is the high exposure to China and Russia, and the other is the high exposure to the energy-heavy industries.” He also noted that the “consumer crisis” affected the two countries in particular when the demand for fashion and other products fell.
Also Read | Jio Infocomm May soon go for IPO – Seeking $100 B Valuation – INR 1200/Share – Reports
Financing costs remain high
Real estate, telecommunications, media and technology companies, and retail were the most stressed sectors in Europe. According to BCG, around 68 percent of real estate is showing these early signs of stress, compared to around 26 percent in 2023.
The data shows how the continent is still dealing with the fallout from a rapid rise in central bank interest rates and rising commodity and energy prices after Russia’s invasion of Ukraine. While there are signs of economic recovery in Europe, financing costs remain high, and markets only expect about two full interest rate cuts from the European Central Bank this year.
According to the report, higher interest rates were the main cause of weakness in more capital-intensive sectors such as telecommunications and manufacturing. In addition, industrial companies across Europe have faced constant competition from countries such as China and must invest in their companies to adapt to regulations such as the EU’s Green Deal.
Also Read | Nifty and Sensex are waiting for Aggressive Bull Run – Huge Impact of Lok Sabha Results
When the deadline hits: Schönfelder
According to BCG, the retail industry has also experienced increased risk sensitivity from banks, as debt and capital are also limited for the development of retail real estate. This comes with headwinds such as increased labour costs and supply chain disruptions.
Despite this pressure, according to Schönfelder, there have been fewer debt restructuring processes than expected. Part of that is because lenders have been willing to enter into conversions and extensions that delay the maturity of the debt and adjust some of the terms. “In many refinancing situations, companies and creditors are just trying to kick the can,” Schönfelder said, adding that the problem still needs to be addressed when the new deadline comes around.
About Author
This article has been covered by Ms. Swara Kekatpure, a finance student at NMIMS University, Mumbai. She carefully analyses businesses in detail and ensures her work incorporates honesty, integrity, and unwavering dedication.
