Spanish companies will emerge from the coronavirus crisis with a very deteriorated income statement and a serious solvency problem due to the increase in debt that many of them have had to face to survive during the economic downturn. Those that come out, because according to the Bank of Spain there is a risk that almost one in ten will go into a liquidation process because it is unfeasible.
What does the supervisor mean by “unviable company”? Those whose expected future results are negative and, therefore, insufficient to meet the amortization of their debts. The future of these companies passes directly through their liquidation.
The Banco de Espaà ± a makes two projections on how the crisis will affect non-financial companies as of 2021. In the first, of a more benign nature, the institution considers that the effects of the crisis will be transitory and will not leave a dent in the results of the companies in the coming years after the setback of 2020. In this scenario, the unviable insolvent companies would be 6%.
In parallel, the regulator makes a second calculation, assuming that the current crisis will cause changes in the companies’ business during the next few years. This could be due to the effects of the crisis lasting longer than expected or to structural changes that have accelerated the pandemic. For example, the rise of electronic commerce to the detriment of physical purchases. In this second scenario, the number of unviable insolvent companies ascenderÃa al 10%.
In a second group would be the companies that are going to be in a situation of temporary insolvency due to the crisis, but that could overcome with the help of their creditors and public aid. 8% of Spanish companies would remain in this position, and they will have to undertake a restructuring of their debt or its conversion into shares in order to move forward.
The complicated situation in which insolvent companies will be left will become one of the greatest threats to the economy as of 2021. According to the calculations of the Bank of Spain, up to 20% of corporate debt will need ¡Restructuring, removal or, directly, will end up becoming delinquent on the balance sheet of financial entities.
The impact will vary by sector and will be especially hard on SMEs, which make up 96% of the country’s productive fabric. In businesses such as hotels, restaurants, leisure and motor vehicles, the levels of insolvency will exceed 30% in the most negative scenario. In other words, it would affect one in three companies. The figure is double that registered at the end of 2019.
The Bank of Spain also puts figures on the tsunami that 2020 has meant on the companies’ income statement. The ordinary net result of the companies that it analyzes through its central balance sheet shows a drop of 71% in the first three quarters of the year. If the decline in business is also compounded by the deterioration of financial assets and other provisions, the main conclusion is that Spanish companies are at a general level in losses for the first time since the year 2002.
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