Most EMEA corporate sectors see rise in 'Negative' rating pressure, Moody's says

In a note to subscribers on Thursday, the ratings agency said its stable view reflects rating expectations that fundamental macroeconomic factors in EMEA, particularly in the Eurozone, will remain largely unchanged.

Just slightly more than half of the Industry Sector outlooks (ISO) covering EMEA corporates have remained stable since December 2015, Moody’s said with only European and CIS Steel, Global Shipping, and North American and EMEA Chemicals turning negative.

Jean-Michel Carayon, analyst and senior vice president at Moody’s, noted: “As a result, there is an overall stable balance, though it is becoming more skewed to the negative. Of the 23 ISOs that are either global or EMEA-specific, 12 are currently stable, three positive and eight negative.

“The number of negative ratings outlooks or ratings on review for downgrade is at its highest level since the third quarter of 2013, primarily driven by the commodity and oil and gas sectors where most ratings are or have been on review for downgrade. However, we note that slightly more than half of the industry sector outlooks in the region are still stable.”

Carayon forecasts that downgrades could materially outnumber upgrades in EMEA in 2016 because of the rating migration of commodity and oil and gas companies.

Moody’s central scenario is that the spike in downgrades should be concentrated on the first four (or five) months of the year once the reviews of companies in these sectors and emerging markets are concluded, after which rating actions will be more balanced over the rest of the year.

The agency also sees the default rate for EMEA non-financial corporates increasing towards the high end of the previously expected range (2%-3%), and even possibly exceeding 3% in 2016, with a majority of the defaults likely to take the form of distressed exchanges.