Proactive Investors - The number of 'zombie companies' that struggle to pay interest on their debts is accelerating and now makes up almost 6% of publicly traded companies globally.
Zombie company numbers have grown by 9% annually since 2010 to reach 2,370 worldwide, according to research by consultancy Kearney, which pointed to cost inflation, rising interest rates and economic instability as drivers.
In the past year, 827 new zombies emerged, outpacing 534 that resurrected and 127 that delisted.
For the uninitiated, the corporate 'undead' are older firms that have persistent problems meeting their interest payments, with a more precise OECD definition being that the companies have revenue of greater than zero for 10 consecutive years, demonstrating they are active and are not a start-up, but have not been able to meet interest obligations through operating profits for three consecutive years.
The "invasion" was most prevalent in the Asia Pacific region, the research found, with a 10.7% increase in zombie companies, including a 27.2% surge in China, much in the real estate sector, and 13.6% rise in Australia.
In North America, numbers increased 6% while Europe saw only 1.3% growth, with South America and Africa seeing 4.9% and 3.2% decreases.
Companies in the real estate industry were hit more than companies in any other sector by rising inflation and interest rates, while the travel and tourism sector saw a net decline of zombies from 14.7% to 9.7%.
"Zombie companies may have been able to avoid considerable financial pain as a result of cheap borrowing costs, but this is no longer the reality," said Kearney partner Nils Kuhlwein.
"The problem for many zombies is that they lack deep cash reserves, and the interest they pay on many of their loans is variable —not fixed—making higher rates all the more painful."
Stress-test scenarios found the situation "could be much worse", he said.
If all companies had to refinance their current debt obligations at today’s higher interest rates, a two-fold rate increase would turn close to eight of every 100 enterprises into a new zombie.