By Abhinav Ramnarayan and Lawrence White
LONDON (Reuters) – European companies hit by the coronavirus crisis are increasingly turning to a complex financial tool to pay suppliers, raising investor concerns around “hidden” debt.
Supply chain financing, by which companies can get cash from banks and funds to pay their suppliers without using working capital, has likely hit a record high in 2020, data shows.
The world’s top banks are set to earn $27 billion from financing supply chains this year, data from research firm Coalition shows, as larger borrowers, mostly in Europe, scramble to help suppliers hammered by the pandemic.
This represents a rise of about 5.5% in 2020, compared with an average 2% increase in the previous four years.
While supply chain finance is a legitimate business tool, high-profile collapses of companies like Britain’s Carillion, Spain’s Abengoa and the United Arab Emirates’ NMC Health have prompted investor concern.