French Regulators, Lenders At Odds Over Soaring Corporate Debt

Regulators in France are beginning to raise concerns over rising corporate debt levels, but the lenders themselves say there’s nothing to be worried about.

Reuters said France’s corporations are borrowing at record levels, even as other markets across the European Union see corporate debt levels drop. The nation’s central bank has taken measures to set a borrowing cap on corporates in the most debt, an unprecedented move by the nation’s financial stability council, reports said.

The cap will take effect in the middle of 2018 and applies to about 10 companies, though the central bank did not say which businesses.

“We consider that there is a risk that big companies in particular are going too far,” said Bank of France Governor François Villeroy de Galhau.

More than half of the recent increases in business borrowing across the EU came from French firms, reports said. That’s despite France making up just a fifth of the EU’s GDP, reports said, citing data from France’s central bank. Corporate lending in the country increased by more than 6 percent in 2017, and as much as 8 percent for some companies. Economic growth is forecast at 1.8 percent for the country.

Lenders, rating agencies and some economists say heightened borrowing among corporates is simply a strategic response to low interest rates and high taxes. But French regulators say the borrowing spikes may lead to overpriced M&A (mergers and acquisitions) activity that could lead to significant losses if they take writedowns on future takeover values, reports said.

“The corporate credit situation in France is very highly dependent on what happens to interest rates,” said Patrick Artus, Natixis chief economist, in an interview with the publication. “There’s a real problem with corporate debt in France.”