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Firms Used Bulk of Debt for Non-Core Financing, Analysis Shows

Ljubljana, 08 December (STA) - Debt levels at major Slovenian industrial companies rose 20% in 2007 and 26% in 2008 before falling in 2009. Only 43% of the new debt was used for the financing of core activities, the rest was spent on financial investments and real estate, shows an analysis by the Ljubljana Faculty of Economics presented on Wednesday.

The analysis, by professor Janez Prasnikar and his colleagues, looked at 203 industrial firms with over 100 employees between 2005 and 2009.

In this period industrial firms took on disproportionate amounts of debt, Prasnikar said as he presented the analysis at the Chamber of Commerce and Industry (GZS).

The high debt levels caused the most problems in firms that had been the target of management buyouts, according to Prasnikar, as the value of collateral plunged during the recession.

"The credit crunch was compounded by a collateral crunch," he said.

On the other hand, companies which had combined organic growth with debt fared best, in particular diversified firms with a strong majority shareholder and firms in foreign ownership.

Looking at productivity, the analysis showed that companies with dispersed ownership had the highest productivity. "They form the core of the Slovenian economy," Prasnikar said.

Companies with a strong majority shareholder and financial holdings also had high productivity, whereas companies that were bought by managers had low productivity and high debt.

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