Big cap fund managers will be considering the implications of Moody’s Investors Service latest estimate of non-financial companies across Europe, the Middle East and Africa sitting on some €870bn in cash.
According to the rating agency’s data, this represents an increase of some 6% over the previous year, and means that the 10 cash richest companies in Europe alone have €211bn on their balance sheets.
The top five companies on this basis – Volkswagen, EDF, BP, Fiat and Poste Italiane – are each holding €23-26bn, according to Moody’s figures.
Furthermore, according to the rating agency’s own data, the overall cash pile is increasingly being concentrated among the top cash holders, despite an overall increase in the number of rated issuers across the EMEA region. It said that this could be explained by the fact that larger investment grade companies tend to hold more cash, while EMEA companies that have only recently been rated are more likely to be indebted, with little cash on their balance sheets.
Moody’s expects cash balances to remain high, given technical issues such as an estimated rising cost of alternative liquidity following Basel III rules. However, it is also the case that funding availability has been improved through developments such as the ECB’s quantitative easing programme. Holding cash is less critical in mind of the improved liquidity forced into the financial system by institutions such as the ECB.
Jean-Michel Carayon, a Moody’s senior vice president, said: “While we expect M&A activity in 2015 to remain sustained, companies are finding it more attractive to finance their deals through debt rather than using their cash, due to abundant liquidity and low interest rates.”
Russia and Germany saw some decrease in cash balances. In Russia’s case the falling oil price and lower issuance of new debt resulted in the change. In Germany the larger cash balances were reduced by companies such as BMW, Daimler and Volkswagen – although as noted this still left them with significant cash balances.
Moody’s added that cash balances generally would fall if companies felt it was a less efficient use of capital.