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Moody's: Europe's top 10 corporate cash holders take a bigger chunk of the EUR870 billion cash pile

Global Credit Research - 07 Jul 2015

Companies will continue to retain significant cash balances

Paris, July 07, 2015 -- Corporate cash piles rose by 6% to €870 billion in the year ending December 2014 in Europe, the Middle East and Africa (EMEA), says Moody's Investors Service in a special report published today. Of this cash pile, €211 billion (nearly a quarter) is concentrated in the hands of the top 10 cash holders, which make up 1.48% of the 672 non-financial corporate groups that Moody's rates.

"Volkswagen, EDF, BP, Fiat and Poste Italiane are Europe's top-five cash kings, each holding between EUR23 and EUR26 billion. Energy, automotive, telecommunications and utilities continue to be the most cash-flush industries in Europe," observes Jean-Michel Carayon, a Moody's Senior Vice President and author of the report.

"Companies might consider gradually using part of their cash balances, especially if the cost of carrying cash on their balance sheets is high. Capital expenditure will remain the single largest use of corporate cash-flow," says Mr. Carayon.

The new report: "Non-Financial Companies - EMEA: Cash Pile Climbs 6% to €870 Billion," is available on www.moodys.com.

Moody's research shows that the cash pile is increasingly concentrated among the top cash holders, despite an increase in the number of rated issuers in EMEA. This is mainly because large investment-grade companies tend to hold more cash, while newly-rated EMEA companies are mostly highly-indebted issuers, including leverage buyouts (LBOs) which have little cash on their balance sheets.

The rating agency expects companies to continue to retain significant cash balances, as the cost of alternate liquidity (such as committed facilities) is likely to increase with Basel III. Moody's observes that companies are currently less concerned about funding availability, as ample liquidity (following the European Central Bank's quantitative easing programme) and stronger market appetite, are prompting a shift in behaviour. Holding substantial cash balances is becoming less critical to companies, while substantial liquidity is available in the market.

"While we expect M&A activity in 2015 to remain sustained, companies are finding it more attractive to finance their deals through debt rather than using their cash, due to abundant liquidity and low interest rates," notes Mr. Carayon.

While cash levels have soared in the past six years, European companies are likely to begin prioritising growth, including acquisition-led growth. Moody's expects the European bond market to remain the main source of funding for large companies, and increasingly so for medium-sized companies.

Moody's research shows that, on a country-by-country basis, Russian companies' cash holdings diminished in 2014. The decrease was mainly the result of lower new debt issuance and lower oil prices. Russia's OJSC Gazprom (Ba1 negative) and OJSC Oil Company Rosneft's (Ba1 negative) cash piles have diminished, meaning that they are no longer among the top 10 cash holders. Italian companies have increased their cash balances. In Germany, cash balances decreased year-on-year in 2014, partly due to a reduction in the cash balances of large cash holders BMW, Daimler and Volkswagen.

Moody's also expects that the total cash pile could stabilise or fall slightly in the future, if companies feel less need to hold substantial cash and it is not cost-efficient.

Subscribers can access the report at: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1005724

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Jean-Michel Carayon
Senior Vice President
Corporate Finance 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
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Paris 75008
France
JOURNALISTS: 44 20 7772 5456
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Moody's: Europe's top 10 corporate cash holders take a bigger chunk of the EUR870 billion cash pile
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