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Highlights
- Surge in distressed ASX-listed companies tied to falling battery mineral prices.
- Mining sector sees the highest rise in financial distress, followed by technology and retail.
- Persistent inflation and high-interest rates impact profit margins, increasing debt loads.
The recent downturn in battery mineral prices has caused a significant rise in financially distressed companies, often called "zombies," across the Australian share market. These companies, while facing persistent financial challenges, continue trading without entering insolvency. According to a recent KPMG report, the number of “zombie companies” on the Australian Securities Exchange (ASX) rose 31% over the past six months, totaling 122 as of September.
KPMG defines zombie companies as those that show prolonged financial distress yet remain operational. This increase highlights a troubling trend in several sectors, particularly mining, as the sector faces ongoing price pressures on key materials like lithium and nickel. These materials, essential for batteries and other energy technologies, have seen notable price drops, impacting companies that rely heavily on them.
KPMG’s head of turnaround and restructuring, Gayle Dickerson, commented on the challenging financial landscape, emphasizing how persistent inflation, high-interest rates, and reduced consumer sentiment are straining businesses’ finances. She pointed out that these factors are putting severe pressure on companies’ profit margins, which, coupled with increasing debt levels, is driving even stable businesses into distress.
The mining sector stands out as the most affected, experiencing a 51% rise in distressed companies since March, with a total of 59 zombie companies by September. The downturn in nickel and lithium prices has hit mining firms especially hard, including (ASX:NKL) for nickel and for lithium. This significant shift has led to miners accounting for 48% of all zombie companies listed on the ASX, reflecting how dependent these businesses are on stable battery mineral markets to maintain their operations.
Following the mining sector, technology and telecommunications companies are experiencing similar pressures. The impact on these sectors has been driven by both a tech investment slowdown and rising operational costs. Companies in the consumer and retail sectors are also seeing increased financial challenges due to reduced consumer spending, which impacts revenue and margins.
With little indication of immediate relief from inflation and high-interest rates, experts believe many ASX-listed companies will continue to face financial struggles in the coming months.
