What is the philosophy behind the Economic Restructuring and Competitiveness Programme (ERCP)?
To encourage deleveraging among firms that are heavily indebted to banks. And why are some companies so heavily indebted? Many choose to finance their investments through bank loans rather than raising money on the capital markets. Which, I suppose, is not a bad idea when interest rates are low Yes, but even when lending rates are high, enterprises keep having recourse to borrowing when the cost of capital on the stock market is more appealing. But is this strategy sustainable? Yes, as long as they get a reasonable return on investment that allows them to repay their debts without putting stress on the cash flow. But today, we are deep in an economic crisis. Our enterprises are not getting sufficient business and are unable to achieve the same level of profitability as before. Excessive borrowing has led to a situation where finance costs represent a big chunk of the expenses of the company. When the gearing ratio is high, a company should reduce its debts and find other ways of raisin
