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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 performs new downgrades and negative watches concerning 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 themselves at their previous risk level.


The BRIC countries: hit but not sunk
 

Among the countries that are relatively resisting are 3 BRIC countries: India, Brazil and China.

India’s A3 rating remains unchanged since December 2004. Actually, the country continues to be driven by its internal demand and has been little affected by the crisis by means of the 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. Furthermore, 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 led to 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) lead Coface not to downgrade this country.

In return, Russia is the worst-affected of these four 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.
 

Middle East and North Africa: resilience or delayed effects?
 

Among French companies’ main trading partners, 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, President of Coface. “Our main scenario still forecasts the end of the credit crisis in the 2nd half of 2009, once 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”.
 

Press Contact: Nathalie Ott / +33 (0)1 49 02 16 29 / nathalie_ott@coface.com




About Coface
Coface's mission is to facilitate global business-to-business trade by offering its 130.000 customers four business lines to fully or partly outsource trade relationship management and to finance and protect their receivables: credit insurance, factoring, ratings and business information and receivables management. Thanks to the worldwide local service delivered by 7,000 staff in 65 countries, over 45% of the world's 500 largest corporate groups are already customers of Coface.
Coface is a subsidiary of Natixis whose share capital (Tier 1) was 13.4 billion euros end December 2008.

Coface website : http://www.coface.com

 

 

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