Bangkok--16 Sep--Fitch Ratings
Fitch Ratings says in its annual EMEA and Asia-Pacific corporate liquidity study that whilst developed market corporate liquidity remains adequate for both regions, it is forecasting a sharp decline in corporate free cash flows (FCF) as companies continue to grapple with the impact of harsh economic conditions.
"Fitch's bottom-up company analysis for both the EMEA and Asia-Pacific regions indicates a very significant fall-off in profitability not just in 2009, but extending into 2011," says John Hatton, Group Credit Officer for European and Asia-Pacific corporates. "This comes despite indications that capex has already been cut across Fitch's rated portfolio of corporate names, which partly helps to conserve free cash flow generation."
In many cases, Fitch notes, overall liquidity has nonetheless improved for corporates, notably in Europe, where many issuers have opportunistically accessed corporate bond markets to procure liquidity while it remains more readily available. "In developed markets, companies' cash balances are up by an average of 30-40% compared with the 2008 study," notes Hatton, with the bulk of this figure driven by increased bond market activity and internal cash conservation, not least through the working capital benefits of shrinking revenues and inventory de-stocking.
Many companies in this study are nonetheless likely to have to access debt markets before 2011, as under the study's assumption of the use of existing cash resources for scheduled debt repayments, estimated drawing of funds by developed market companies under their committed revolving credit facilities in the early years is light, but increases significantly by 2011. For the Asia-Pacific portfolio, procuring additional debt financing will be required as soon as 2010.
Fitch's liquidity scores are broadly defined as free cash flow (FCF) before dividends, plus cash-in-bank, plus existing RCF headroom, less future committed capex divided by short-term debt maturities for the relevant period.
The special report "Corporate Liquidity Study - EMEA and Asia-Pacific", covering some 220 corporate entities rated 'BBB' and below, is available on the agency's website, www.fitchratings.com.
Contacts: John Hatton, London, Tel: +44 (0) 20 7417 4283; Tony Stringer, Hong Kong, Tel: +852 2263 9559.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935, Email: [email protected]; Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: [email protected]; Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.