The group has net financial debt of almost 45 billion euros.
(Photo: IMAGO/Ina Fassbender)
Disrupted supply chains, expensive energy, scarce gas, rising interest rates, high inflation rates and the Russian war of aggression in Ukraine – this is a toxic mixture for the stock market. In view of the many crises, it seems advisable to have cash on hand and not to be fully invested in shares, especially not on credit.
This also applies to companies. Investors should interpret the Vonovia share, which has collapsed by almost 60 percent since the beginning of the year, as an alarm signal: Anyone who has financed their growth with ever increasing debt is coming under pressure since interest rates have been rising rapidly.
Vonovia has accumulated net financial debt of almost EUR 45 billion. From the investor’s point of view, the simplified calculation goes like this: Anyone who used to pay annual interest of zero to one percent for so many debts had to raise a maximum of 450 million euros in one financial year.
Assuming an annual interest rate of four or six percent, as will probably be realistic in the future, 1.8 to 2.7 billion euros are needed. This sum will not be easy to raise from ongoing business – and will probably reduce the annual profit sharing. That means: less dividend.
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Higher interest rates make future borrowing costs and bond rates more expensive as companies take on new debt or refinance old ones. That’s why investors are now taking a closer look at who has high, low or no debt.
This trend is likely to intensify. Firstly, because the central banks will continue to raise interest rates in view of persistently high inflation rates. Secondly, because corporate profits are falling given the weaker economy. In the upcoming low-profit times, it is good if companies have to raise as little money as possible for debt.
The brand manufacturer Beiersdorf, for example, is not in debt at all in the Dax, while the canteen kitchen manufacturer Rational is one floor below in the MDax. Both are run by families and communities of heirs. It’s probably not a coincidence. Organic growth, i.e. growing without acquisitions, was out of the question in earlier boom times. Also, get by without debt. After all, these cost almost nothing for a long time.
But in the future, these two qualities are likely to be in demand among investors. The fact that the companies in the Dax, MDax and SDax together have more than half a trillion euros in debt as never before does not create optimal conditions for a stock market that will soon be booming again.
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