Capital Expenditures of Cash-Rich Companies Continue to Remain Weak

The top 2,000 companies worldwide continue to have historically high levels of gross cash, estimated at US$4.5 trillion, according to Standard & Poor’s (S&P).

While the companies have a lot of cash to splurge, expenditure is likely to be 0.5% down in real terms on top of a 1% decline last year, based on data for the first half of 2014.

"A recovery in capex remains one of the most keenly anticipated trends in the global economy," said Gareth Williams, corporate sector economist at S&P in London.

"Our survey suggests the capex cycle remains stuck in neutral, with declining commodity and emerging market capex overshadowing a modest turnaround in developed markets."

A decline in corporate spending is even more pronounced among companies in the emerging markets (EMs), including the BRIC nations of China, Brazil, India and Russia.

S&P is predicting that following a 4% year-on-year (YoY) decline in 2013, a similar reduction is likely this year.

“The balance [of global capex] has shifted dramatically in the last decade and one of the things that leaps out at you is how many of the biggest capex spenders are based in China, Brazil, Russia and India,” said Williams.

Commodity sectors, which have historically had the highest levels of capex, have also kept away from spending.

S&P reports aggressive cuts to capital expenditure at major metals and mining companies such as BHP Billiton, Vale and Rio Tinto, while capex also appears to have plateaued at companies in the global oil and gas sector, such as Petrobras, Chevron, Gazprom and Total.

S&P also found that while companies continue to hold high levels of cash, leverage at the top 2,000 investment spenders has increased YoY.

Globally, net debt rose from US$10.2 trillion in 2012 to US$11.1 trillion in 2013, and leverage - measured by net debt to total assets - was 24%, up from 21%.

However, S&P said that there were reasons to feel optimistic about a future pick-up in investment including plentiful cash at many companies, ageing capital stocks and an improving global economy.


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