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Global Credit Research -
12 Jan 2012
Paris, January 12, 2012 -- 2012 will be a challenging year for non-financial corporates in
Europe, the Middle East and Africa (EMEA), says Moody's
Investors Service in a Special Comment report published today.
The main drivers of this view are the European sovereign debt crisis,
the weak macroeconomic climate, falling consumer confidence and
deteriorating funding conditions.
"We expect that downgrades will continue to substantially exceed
upgrades in the coming year for both investment-grade and speculative-grade
corporates," explains Jean-Michel Carayon, a
Senior Vice President in Moody's Credit Policy Group and co-author
of the report. "This follows on from the deterioration recorded
in late 2011: in Q1-Q3, the ratio of downgrades to
upgrades was less than 2:1, but in Q4 2011 there were nine
times as many downgrades as upgrades."
Moody's expects that financial market turbulence, fiscal consolidation
efforts and banking sector deleveraging will continue to constrain growth
into 2012. The rating agency's forecasts for the euro area
in particular carry a high level of uncertainty, with significant
downside risks which carry negative implications for corporate creditworthiness.
Moody's notes that the refunding needs of speculative-grade
issuers are significant and their current solid liquidity will serve as
a buffer only in the short term. A prolonged period of restricted
market access could be problematic for many speculative-grade companies
in terms of maintaining adequate liquidity and thus their ratings.
Based on current macroeconomic scenarios, Moody's projects
that the speculative-grade default rate in 2012 will rise modestly
from the low level (less than 3%) recorded in 2011. If more
pessimistic macro scenarios come to pass, and the euro area enters
a recession, the default rate might rise to the high single digits.
Government-related issuers (GRIs) and companies with a geographic
concentration in weakly performing economies are more exposed to negative
pressure in a deteriorating economic environment. In Moody's
view, austerity measures will also more directly hurt corporates
that depend on government programmes for a large part of their top-line
revenue.
At the start of 2012, the majority of Moody's Industry Sector
Outlooks (ISOs) -- the rating agency's view of the
business conditions that it factors into its corporate ratings --
were stable. However, the risk of some outlooks turning negative
is on the rise. Cyclical sectors will be particularly exposed in
the event of deteriorating macroeconomic trends. Amongst cyclical
industries, Moody's ISOs for the European steel and global
shipping sectors are now negative. The ISO for European building
materials remains stable but the outlook is skewed to the downside as
the recovery of the industry following the global financial crisis of
2008-09 has not been as robust as expected. Amongst consumer-driven
sectors, the ISO for European telecommunications service providers
turned negative late last year, largely due to falling consumer
confidence and its potential impact on revenues.
Moody's notes that, to some extent, emerging markets
remain a mitigating factor against weak demand in the euro area for geographically
diversified corporates. However, there is a risk that those
markets will be increasingly affected by Europe's sovereign debt
crisis and an economic downturn in Europe.
Moody's report, entitled "EMEA Corporates: 2012
Outlook", is available on www.moodys.com.
NOTE TO JOURNALISTS ONLY: For more information, please call
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Jean-Michel Carayon
Senior Vice President
Credit Policy Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Myriam Durand
MD - EMEA Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's: Negative prospects for EMEA corporate ratings in 2012 given challenging economic environment
No Related Data.
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