Qantas loses spot in top 5 cash rankings as corporate savings start to shrink

Ratings agency Moody’s has found the massive cash pile held by Australian companies is shrinking as the economy recovers.

Qantas has dropped out of the top five in the rankings amid a massive COVID cash burn at the airline. Picture: NCA NewsWire / James Gourley

The huge pile of cash companies amassed at the height of the COVID-19 pandemic is starting to shrink as normality resumes, according to a report from ratings agency Moody’s.

The massive pile of cash ballooned by 31 per cent to $68.2bn by June last year as companies gorged themselves on sales or new debts.

Companies outside of the top three cash holders actually increased their cash positions even further, growing balances by 41 per cent in that same period to $35.2bn.

But almost 68 per cent of the massive money pile was held in the coffers of just three companies.

BHP, Fortescue Metals and Wood Petroleum between them held about 50 per cent of total cash and cash equivalents by mid last year.

Between them BHP, Fortescue Metals, Woodside Petroleum, CSL, and CIMIC are the largest cash holders in the country.

CSL pipped Qantas for its place in December after the airline burned through its cash amid the shutdown of airlines in the heart of the pandemic.

BHP Group remains the biggest cash holder in Australia. Picture: AFP

Moody’s finds 33 companies increased their cash positions in the lead up to June 2020.

But by December the money pile had shrunk by 16 per cent to $57.3bn as cash clutched close to companies exited.

Between July and December, BHP paid out almost $7.5bn

Moody’s analyst Maadhavi Barber said Australian companies would increase cash spending as earnings recovered.

“Earnings metrics deteriorated less than we expected in 2020 as companies moved quickly to cut costs, defer capital spending and suspend or reduce dividends to preserve cash flow,” she said.

“Moreover, debt levels will eventually start to rise again as companies reinvest for growth post pandemic.”

Moody’s finds much of the money that has left major companies has gone out as debt repayments or dividends.

The ratings agency expects over the next 12 to 18 months the massive money pile will ebb even further to return to pre-pandemic levels.

Moody’s finds the shrinking cash pile will flow through to bank lending in the coming year “in line with falling corporate cash balances”.

They find this will combine with rising credit growth and a likely slowdown in household deposit growth all falling alongside the conclusion of cash injections from the Reserve Bank of Australia via the Term Funding Facility which will conclude on 30 June 2021.

The ratings agency finds the top three cash holders reduced their total cash by 38 per cent in the six months leading to December.

Moody’s reports 25 companies decreased their cash balances from their mid-pandemic peak.

But not all companies walked their cash balances backwards, with 16 further increasing their positions.