PRESS RELEASE
The financial strength of companies continues to decline in most countries. Coface is nevertheless maintaining its ratings for China, India, Brazil, the Middle East and North Africa
Warning: the Coface country rating does not concern sovereign debt; but indicates the average level of risk presented by companies in their commercial transactions. This average evolution is not a guide to each company’s rating, which is determined by its own characteristics. The partners of a company located in one of the above-mentioned countries or regions are therefore strongly advised to check that company’s specific Coface rating.
The credit crisis, which entered its 2nd phase in the 4th quarter of 2008, is worsening in all areas. After observing a decline in companies’ average financial strength in 22 countries in January, Coface is conducting new downgrades and negative watches on 47 countries. Most countries have their ratings reduced by one notch (on a scale of 13), or by two in the case of the worst-affected countries (namely Spain, the UK and Ireland). Only a few areas – India, Brazil, China, the Middle East and North Africa – are maintaining their previous risk level.
The BRIC countries: hit but still standing
Among the countries that are resisting the crisis relatively well are 3 BRIC countries: India, Brazil and China.
India’s A3 rating remains unchanged since December 2004. Infact, the country continues to be driven by its internal demand and has been little affected by the crisis due to international trade. Indian companies are facing the most moderate slowdown of the BRIC countries (5% growth in 2009, i.e. 4 points below 2007).
Brazil (A4 rating since December 2006) has a diversified economy and corporate debt in foreign currencies has not been as detrimental as in Central Europe.
Coface is maintaining the negative watch placed on China (rated A3) in January, owing to firms’ vulnerability to the growth shock in a context of overcapacity and very stiff competition, which has resulted in reduced margins. However, the adoption of measures to stimulate the economy and the first quarter’s positive signals (an increase in credit and a rise in manufacturing output) mean that Coface is not downgrading this country.
In contrast Russia is the worst-affected of these 4 countries. It will have to deal with a growth shock of 11 points, i.e. the highest of the major economies (from 8.1% in 2007 to -3% in 2009). Russian companies have very substantial foreign currency debts and are therefore badly affected by the credit crunch. Coface is still recording payment defaults at the beginning of 2009, and therefore decided to downgrade Russia to C rating.
Middle East and North Africa: resilience or delayed effects?
The countries of North Africa seem to be weathering the crisis relatively well. Tunisia and Morocco have diversified economies and banking systems with little exposure to toxic assets. So far, Coface has not observed any deterioration in companies’ payment behavior. The oil-producing countries of North Africa and the Middle East entered the crisis from a position of enhanced financial strength (due to the oil boom of 2003-2008), from which the whole region has benefited. The area’s rating remains unchanged.
“The peak of the crisis should be reached in the first half of 2009” declared François David, Chairman of Coface. “Our main scenario still forecasts the end of the credit crisis in the 2nd half of 2009, when the world economy should cease to contract. We consider a recovery in early 2010, albeit a sluggish one due to the long process of debt reduction by the private economic agents: individuals and companies”.
Xavier Denecker, Managing Director of Coface in the UK & Ireland comments:
In the UK and Ireland, corporate payments have been seriously affected by the crisis, and confidence in trading is deteriorating as company liquidations rise rapidly. There is now a growing awareness of credit risk as the failure of key customers can jeopardize the financial health of suppliers of goods and services. Coface in the UK and Ireland will continue to work for its clients during this difficult time - that is providing them with information;
Save the Date! Coface UK & Ireland's Country Risk Conference is taking place on Thursday 11th June 2009 in London. Please click here for more information and to register.
