Oct 7 (Reuters) - (The following statement was released by the rating agency)
Returning economic growth and conservative cash management should boost the debt capacity of EMEA corporates by over EUR100bn by the end of 2013, Fitch Ratings says. The rebound in debt capacity, which assesses how much debt could be issued before reaching potential leverage-related downgrade triggers, follows a decrease of EUR74bn in 2012.
Greater headroom means companies have a bigger buffer to weather market downturns or large working-capital swings and that they have greater capacity to raise debt for spending or shareholder returns without facing a downgrade.
While the main driver is the gradually improving economic environment and conservative corporate cash management, previous rating downgrades have also had a small impact because companies have more headroom at their new lower ratings. This is particularly true for the utilities sector following the downgrade of large issuers in 2012, notable RWE AG.
Natural resources companies experienced some of the biggest falls in debt capacity in 2012 due to low commodity prices, but should improve by end-2013, led by diversified majors Anglo American and Rio Tinto . Oil and gas remains the sector with the greatest capacity to raise additional debt, although that has fallen in 2013 due to the conservative oil prices used in our modelling assumptions, rather than any weakening in the sector’s fundamentals.
The telecom media and technology sector will probably see a continued drop in debt capacity as telecom companies face a mix of intense competition and high capex requirements to upgrade their networks. Full details of our analysis are available in the special report “Corporate Rating Headroom’s Slow Path to Recovery,” published today at www.fitchratings.com.
Link to Fitch Ratings’ Report: EMEA Corporate Rating Headroom’s Slow Path to Recovery