Moody's: EMEA corporates threatened by euro area crisis and weak growth in 2013

The new report, entitled "EMEA Corporates: 2013 Outlook", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

"At the issuer level, Moody's expects continued credit weakness to persist, with the number of downgrades likely to continue exceeding upgrades in 2013," says Jean-Michel Carayon, a Moody's Senior Vice President and co-author of the report. The rating agency expects low growth coupled with ongoing government austerity measures to have a dampening effect on consumer spending. This will most affect industries such as telecommunications service providers, retailers and auto manufacturers.

As of early December 2012 in EMEA, the number of stable Industry Sector Outlooks -- Moody's view of the business conditions that are factored into its corporate ratings -- was only slightly higher than the number deemed negative. If negative trends continue, Moody's could change more outlooks to negative during the course of 2013. The rating agency changed its outlook for European retailers and EMEA auto parts suppliers to negative in February, whilst the outlook for North American and EMEA chemicals was changed to negative in November.

In view of the lack of confidence in an economic recovery, issuers in cyclical industries such as steel, chemicals and building materials, have limited headroom left for credit weakness within current rating categories. Weak levels of demand will also weigh on earnings in several chemical industry segments, affecting even larger groups such as Akzo Nobel NV (Baa1 under review for downgrade) which remains exposed to underperforming segments. In the building materials sector, less geographically diversified firms, such as Italcementi SpA (Ba2 negative), are more vulnerable.

The divergence in operating performance between corporates with large exposure to southern European markets and those with more exposure to northern Europe remains high, as evidenced in the results of Fiat SpA (Ba3 negative) or Telefónica SA (Baa2 negative) for example. In addition, Moody's notes that the risk of economic malaise spreading from southern to northern European countries is increasing.

Moreover, further credit deterioration that results in the movement of large companies to speculative grade from investment grade ("fallen angels") could change the shape of the rated non-financial corporate universe in Europe and heighten already volatile capital market conditions. ArcelorMittal (Ba1 negative) is EMEA's most recent, highest-profile fallen angel.

Moody's expects that the slower pace of economic growth in emerging markets, especially China, will also be a major credit driver in the coming year for cyclical industrials, such as chemicals companies and steel producers. This could hurt the revenues of European corporates that have turned to emerging markets to offset slow growth in their traditional Western European markets.

Liquidity among corporates remains fairly solid overall but gradual deterioration is likely in 2013. This will be due to the sovereign debt crisis and also the result of continued restricted lending by banks intent on deleveraging and building capital ratios.

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Jean-Michel Carayon Senior Vice President Credit Policy - Corporates Moody's France SAS 96 Boulevard Haussmann Paris 75008 France JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Myriam Durand MD - EMEA Corporate Finance Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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