ASX Stocks
Heavily Indebted ASX Stocks: How to Identify Debt Risks & 5 Companies Under Pressure
Debt can either accelerate a company’s growth or drag it down like an anchor. On the Australian Securities Exchange (ASX), many companies rely on borrowing to fund expansion, but when does debt cross the line from “strategic” to “concerning”? In this article, we’ll explore key ways to evaluate corporate debt and highlight five ASX-listed companies currently carrying significant debt loads that investors should keep an eye on.
When Does Debt Become a Problem for a Company?
Debt by itself isn’t necessarily bad. Many thriving businesses borrow capital to scale, invest in projects, or acquire other companies. Problems arise when repayment capacity doesn’t match the debt burden. Here’s how to spot red flags:
Debt-to-Equity Ratio (D/E): Compares total debt with shareholders’ equity. A ratio under 1 is generally considered safe. Anything above 2 may signal elevated risk, particularly outside heavy industries.
Net Debt to EBITDA: Shows how many years of earnings (before interest, tax, depreciation, and amortisation) would be needed to clear debt. 2–4x is a healthy range; above 4x raises concerns.
Interest Coverage Ratio: Measures the ability to pay interest from operating income. A ratio under 2x may indicate potential repayment challenges.
Free Cash Flow vs. Total Debt: If free cash flow is consistently lower than total debt, it suggests limited flexibility to repay or reinvest.
Debt Maturity Profile & Covenants: Large near-term repayments or restrictive covenants can increase financial stress.
5 Heavily Indebted ASX Companies to Watch
Star Entertainment (ASX: SGR)
Star Entertainment holds over $1 billion in debt against less than $250 million in cash. Regulatory fines, legal challenges, and losses linked to its Queen’s Wharf Brisbane development (approx. $3.6 billion) have significantly pressured its balance sheet.James Hardie (ASX: JHX)
With long-term debt exceeding US$2.5 billion, the company’s controversial $14 billion acquisition of Azek has sparked investor dissatisfaction. Rising interest costs (over US$300m expected) and a strategic listing shift to Wall Street have added to shareholder frustrations.Orora (ASX: ORA)
Orora borrowed heavily for its acquisition of Saverglass, aiming to expand its premium packaging footprint. Though debt was trimmed from A$2 billion to around $500 million after divestments, it still exceeds its cash reserves, leaving limited financial breathing space.WiseTech Global (ASX: WTC)
WiseTech funded its US$3.2 billion e2open acquisition entirely with new debt, despite having a net cash position of just US$70 million before the deal. This bold move increases leverage in an already competitive software supply chain market.Woodside Energy (ASX: WPL)
Operating in a capital-intensive sector, Woodside raised US$3.5 billion via senior unsecured bonds, pushing its net debt to US$8.7 billion. A recent S&P credit rating downgrade (stable to negative) highlights risks tied to its Louisiana LNG project and fluctuating energy prices.
Final Thoughts
High debt doesn’t always mean a company is doomed — but it does increase risk, especially in volatile markets. As an investor, keep a close eye on debt-related ratios, cash buffers, and repayment schedules. Companies with growing earnings and robust free cash flow may manage heavy debt well, while those with declining revenues may struggle to recover.