Debt to equity ratios of Hong Kong listed companies remain high, averaging 85.6% compared with 83.2% in 2008 according to a report released last week by Ferrier Hodgson on the impact of the GFC on Hong Kong listed companies. “The high debt and reduced profitability highlights the need for far greater levels of operational restructuring,” said Nick Gronow, executive director of Ferrier Hodgson.

With profits down and debt levels remaining high, Hong Kong also saw an increase in corporate bankruptcy and insolvency matters from September 2008. However, these casualties didn’t happen overnight. “Failed companies usually don’t suddenly go bad. Typically they have had problems for a while, even if it can be difficult to tell from their results. One of the signs is the level of intangible assets to total assts: research shows that failed companies were almost 10% above the market average for intangible assts to total assets per year in 2008. We find the percentage of intangible assets to total assets has been steadily increasing in recent years. It is mainly because intangible assets have greater grey areas in terms of value, which allows companies to boost their balance sheets,” said Gronow.

It’s not all doom and gloom. Those listed companies with good corporate governance and proactive business improvement strategies have a better chance at sustainability and strong growth, said Gronow.

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