Agri & Food in leading group of major bankruptcies

After the sharp decline (in the past 6 years) in the number of bankruptcies in the Netherlands, we foresee an increase again for next year. The situation is also deteriorating in countries such as the United Kingdom, Turkey, Norway, Switzerland, Denmark and Slovakia.

The turnaround in the Netherlands is facilitated by a decline in economic growth. Depending on the final agreement, Brexit could also push up the number of bankruptcies in the Netherlands even further. Our research department expects the number of bankruptcies worldwide to increase by around 2019% in 5.

Scope of bankruptcies
Another trend is the size of major bankruptcies; it keeps getting bigger. This development has been going on for several years and is continuing. After the first three quarters of this year, the economic damage caused by major bankruptcies is already greater than in the whole of 3.

If we list the major bankruptcies so far for 2018, the agri and food sector is in the top 3 worldwide. Construction is at the top and retail is in second place. We recorded 20 major bankruptcies for the agri and food sector this year.

Consequential damage
Major bankruptcies are hitting the world harder and harder. The total turnover lost in 2017 due to major bankruptcies amounted to €104 billion. This does not include consequential damages for suppliers, banks and shareholders. This year the counter was already higher at the end of the third quarter: € 105,8 billion.

The above trend will continue as some undermining developments are underway. The total mountain of debt has increased at an alarming rate. If we add up all debts (corporations and governments) worldwide and compare it with 10 years ago (when Lehman Brothers collapsed), the debt burden is now twice as high. Now that money is becoming more expensive again, this burden of debt hangs like the sword of Damocles over the market. The loans will have to be repaid and money is needed again (more expensive money).

Ratings
The large companies receive ratings from the credit rating agencies for their creditworthiness. In addition to risky companies with a 'junk status', there is the category 'solid companies'. For this category, the share of BBB companies (the weakest credit rating) has increased sharply. From 25% in 2008 to more than 50% now. Roughly translated: when the economy gets into heavy weather, the flow of major bankruptcies will only increase further.

Walter Toemen

Walter Toemen is director of Risk, Information and Claims at credit insurer Euler Hermes Netherlands. He is also chairman of Platform Kredietverzekeraars.

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