Fear. anxiety. exhaustion. britons are suffering from all three, according to rishi sunak. the uk chancellor has thrown a much-needed 5bn-odd lifeline to struggling businesses. most had dared to hope for a steady recovery. but covid-19 has rallied. new social restrictions leave many companies flirting with collapse.
Take cinema chain cineworld. on thursday it warned that a worsening of the coronavirus next year would jeopardise its survival. it will breach loan covenants of nine times net leverage in december this year, even under its base case scenario.
The group has already raised an extra $361m. it will need more, along with covenant waivers, if partial shutdowns are prolonged. cinemas do well in normal recessions. but shares three-fifths below their pre-pandemic level show many investors have left this movie early. they think they know how this one ends.
Mitchells & butlers shares fell sharply at the start of the week, ahead of the announcement of tighter restrictions. the pub and restaurant group agreed waivers with creditors in june. it is confident 240m of liquidity will get it through a tough winter.
Raising 100m from the government's guaranteed loan scheme made all the difference, says m&b. in all, there have been 58bn of emergency loans. guarantees and loans amounted to 15 per cent of uk 2019 gross domestic product that is three times as much as the us, but half as much as germany, says the oecd.
The chancellor talked about 330bn of loan and guarantees in his do whatever it takes message in march. take-up has been nowhere near that. the bank of england has only bought 17bn of commercial paper under the covid corporate financing facility. another 84.6bn is approved.
Investment-grade companies have been able to tap other sources. half the money european investment-grade companies raised since march is sitting on their balance sheet as cash, says s&p. weaker credits have also raised money. but talk of undrawn facilities can inspire false confidence in shareholders: drawdowns may depend on hitting earnings targets that are now unattainable.
We are living with uncertainty, says mr sunak. only up to a point. businesses disrupted by the pandemic now know their best-case scenario of a swift recovery this autumn was a fantasy. government support has shown its limits in the unwillingness of businesses to borrow money they fear they cannot repay. long-lasting economic damage is now unavoidable.
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