EMEA corporate outlook brightening, Turkish companies at most risk: Fitch

LONDON

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Gradually improving economic conditions across much of Europe should help strengthen cash flows and modestly reduce leverage among the region’s corporate issuers in 2015, Fitch Ratings said in a written statement on April 8. 

“But macro risks remain significant and any delay in economic recovery could hit lower-rated corporates hard, especially as many companies have already cut costs to the bone. We expect the diversified manufacturing and automotive sectors to experience the strongest improvement in cash generation in 2015, while oil and gas and utility companies will face pressure from weak oil and energy prices,” it said. 

Overall, the agency expects higher funds from operations to lead to slight deleveraging across EMEA corporates and help strengthen interest and fixed-charge cover in conjunction with falling debt funding costs.

The main macro risks for 2015 include slower growth and foreign exchange volatility in emerging markets, and the potential for prolonged eurozone deflation, according to Fitch Ratings. 

“Turkish corporates would be most at risk in an forex stress scenario because of their relatively high FX borrowing and lack of hedging, but overall we believe widespread financial distress in emerging markets remains unlikely thanks to an improvement in credit fundamentals over the last decade. Quantitative easing has reduced the risk of prolonged deflation, but were this to occur, corporates would face a combination of weaker demand, higher real interest rates and rising real debt burdens,” it said.