The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

Corporates have their capital balance all wrong

Rhodia and Cable & Wireless have too much debt, while energy companies and utilities have too little, according to a report from Morgan Stanley.

The credit report, titled ?Who's Got it Right, Who's Got it Wrong?, says that although Europe overall has the right debt-equity structure, with average leverage consistent with a BBB+ rating, many corporates and sectors are way off their optimal balance.

The research analyses how much it costs a company to raise debt as opposed to equity (its weighted average cost of capital) to discover the market's view of what debt-equity structure a company ought to aim for.

It reveals that European industrial companies should aim for the leverage profile of a BBB-rated company. If Rhodia (B) and Invensys (B+) deleveraged they would reduce their funding costs by 3-3.5%. And the European technology sector should aim for a single A leverage profile ? more like Nokia (A) and less like Cable & Wireless (BB), which could save 1.36% on its cost of capital if it deleveraged.

At the other end of the scale, energy, utilities and consumer retailers should issue more debt, their low cost of credit revealing that they are not maximising their leverage.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree