Heavily indebted ASX stocks: Here’s how to tell when debt is a problem and 5 stocks we’re worried about

Let’s take a look at some of the most heavily indebted ASX stocks. Specifically, how to tell that they are ‘heavily indebted’ and we’re going to name some of the companies we are most worried about.

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When debt is a concern for listed companies

Simply put, when companies are unlikely to be able to repay it. Debt in and of itself is not a problem if it can be repaid, but some companies take out debt thinking they can repay it but they cannot. Now you may ask: Why would debt financiers lend if they may not be able to get their money back? Well it is two things: Interest and having security over company assets (so in all likelihood they’ll be repaid before equity financiers).

The trouble is that it can be hard for laypeople to tell if debt is a problem. But there are a few ratios that can be indicative. One is the debt to equity ratio which compares total debt to shareholders’ equity (i.e. what shareholders have invested). <1 is typically safe but any figure >2 might be considered high unless it is a capital-intensive industry.

Others include:

• Net Debt to EBITDA (measures how many years of cash profits it would take to repay net debt),
• Interest Coverage Ratio (indicates ability to meet interest obligations from operating income) and,
• Free Cash flow vs Total Debt (indicates the ability of the company to handle higher debt loads).

In case of the first of those two – 2-4x is the sweet spot. Anything below 2x is good in the first but bad in the second, whilst anything above 4x is bad in the first but good in the second.

It is also important to look at individual company credit ratings, norms for debtedness in the company’s sector and the maturity profile of the debt (i.e. near-term or longer-term?) as well as any covenants and restrictions. Also consider if debt has increased substantially over a quick period of time, and any reasons for it. Oh, and most important of all, the company’s cash buffer.

5 Heavily indebted ASX stocks we’re worried about

1. Star Entertainment (ASX:SGR)

Star has over $1bn in debt and less than $250m in cash, making it one of the most heavily indebted ASX stocks. The burden was built up over time as part of restructuring and refinancing efforts amid severe regulatory and financial stress—stemming from fines, legal troubles, and operational losses. Heavy expansion via the lavish Queen’s Wharf Brisbane development (around $3.6 billion) was arguably the greatest catalyst of all.

2. James Hardie (ASX:JHX)

James Hardie has long-term debt of US$2.5bn. The reason? The $14bn buyout of Azek. And this does not even include financing costs, with the interest expenses expected to cost over US$300m. It is one of many reasons ASX investors are angry with the company right now, another being that ASX investors are being denied a vote on the deal, and the company is taking the opportunity to shift its primary listing to Wall Street whilst having the temerity to keep a listing here.

3. Orora (ASX:ORA)

Here’s another company that took out debt to fund an acquisition. This company bought French glass packaging firm Saverglass in a strategic play to pivot into premium packaging segments. To be fair, its total debt burden was reduced from A$2bn to just over $500m in 12 months thanks to the divestments of its Packaging Solutions and Closures Business, but its debt remains double its cash on hand. The company is gambling that Saverglass will pay for itself…time will tell.

4. WiseTech (ASX:WTC)

WiseTech spent US$3.2bn (A$4.7bn) in buying e2open to add its software to CargoWise – a deal which was the biggest the company did in its history (by a long way). e2open also has platforms used to create documents needed for customs officials but has some features WiseTech’s software lacks in supply chain planning, procurement, trade compliance and channel management. This buy was funded totally with new debt after it has a US$70m net cash position to close FY25.

5. Woodside (ASX:WPL)

To be fair to this company, oil is a high capex industry and so high debt burdens are not completely unheard of. But picking on this company becomes easier considering:

• It took out a fresh US$3.5bn in senior unsecured bonds, taking its net debt to US$8.7bn (not total debt but net debt – its total debt is over US$12bn);
• Its credit rating was downgraded by S&P from stable to negative. The reason was its Louisana LNG project that increases exposure and limits flexibility amidst potential cost overruns or price swings.