Technology & Ideas

Lenovo's Financing Costs Just Hit a Record. For No Payoff

The deals behind the debt aren’t even profitable.

Lenovo's acquisition spree is causing investors unprecedented pain.

Photographer: Justin Chin/Bloomberg

Lenovo Group Ltd.’s debt load is becoming quite a drag.

Used to fund a spate of deals four years ago, the PC maker’s mix of bonds, promissory notes and factoring drove financing costs to a record $263.2 million last fiscal year, from just $81 million in 2014.

Heavy

Lenovo's rising debt levels have led to ever higher financing costs

Put in context, that’s equal to 172 percent of Lenovo’s pretax net income for the year through March 31. It just posted a $189 million net loss to shareholders for the period, from a profit of $535 million the year prior.

To make matters worse, the acquisitions behind these high financing costs continue to hurt the bottom line. Lenovo’s server and mobile businesses both posted losses for the year.

Not Helping

Lenovo's financing costs are hurting its bottom line

Source: Lenovo, Bloomberg Opinion

Note: Lenovo posted a pre-tax loss in 2016, hence metric isn't valid.

In its earnings report, Lenovo missed an opportunity to write down the goodwill on those investments despite clear evidence that the purchases aren’t paying their way.

With financing costs being such a source of pain, investors need to question the value of those deals even if management won’t.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan at tculpan1@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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