Gloomy times don’t rule out rating upgrades, Fitch
Rating upgrades can occur even during generally gloomy economic times and in 2012 upgrades have crossed a range of sectors, reflecting improvements at companies such as Anheuser Bush InBev SA, Continental AG and Rolls-Royce Holdings plc, according to a review of common positive drivers in the EMEA corporate sector published by Fitch Ratings.
The report focused on the differing prospects in developed and emerging markets in order to examine where future near-term upgrades may arise.
“We think that further consolidation could improve ratings in about half of the major corporate sectors, including mass-market autos, metals and mining, and capital goods,” the agency said.
Peugeot SA, currently rated ‘BB-‘/Negative is a case in point.
“The company faces a real disadvantage from a lack of overseas exposure, something that could be addressed by further alliances with a wider geographical reach. Consolidation, of course, is not without risk – and any scale benefits could be nullified or overridden in the short term if companies lever-up for acquisitions,” Fitch said.
Lower leverage, resulting from a more benign economic environment, can in many cases assist ratings. Fitch’s methodology considers a number of financial metrics.
Utilities, heavy building materials, and mass-market autos are among the sectors without such constraints where deleveraging could make a difference.
Emerging-market companies are also likely candidates for upgrades than their peers in developed markets.
Many of their ratings are held down by corporate governance or country caps, so there is the potential for an upgrade if these factors change.
“Companies in Kazakhstan particularly stand to benefit and the sovereign is on Positive Outlook and the country has many sovereign-linked corporates. In general, however, direct links weaken as sovereigns push further up into investment grade,” the rating agency said.