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. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.
OPINION

Asia's companies seek a different style of leverage

The wounds from the region’s financial crisis may have healed on company balance sheets but the trauma remains

Since restructuring balance sheets post the late-1990s crisis, Asian companies have enjoyed an uninterrupted build-up of cash reserves and a corresponding reduction in debt levels. According to ABN Amro, in 1998, the nadir of the crisis, average net debt to equity was 60.5%. That ratio has fallen dramatically to around 25% now and will drop below 20% in 2006.

The lack of gearing is now suppressing returns on equity of Asian companies, says ABN Amro, an important factor in valuation. And companies face pressure to improve their capital management or return cash to shareholders. Dividend pay-out ratios have risen steadily as a result. The Asia ex-Japan dividend pay-out ratio now stands at 39%, according to research from Citigroup, the world’s second highest behind Europe. In 2000, Asia’s ratio was just 24%. In Malaysia, Singapore and Taiwan, companies are now returning more than 50% of earnings in dividends.

Citigroup has calculated another neat way to demonstrate just how much cash Asian companies are hoarding. Based on free cash flow forecasts, it reckons that 37% of Asian companies under its coverage could privatize themselves in less than five years, amounting to a return of capital of some $432 billion.

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