Corporate cash piles at Europe, Middle East and Africa’s (EMEA) non-financial companies topped $1 trillion for the second consecutive year in 2017, despite their net M&A spending jumping to a seven-year high, according to new research.
Ratings agency Moody’s said it has come to the conclusion upon examining the cash holdings of 757 the companies it rates in EMEA, as well as the sources and uses of this cash. However, exchange rate gyrations contributed to a slip in cash balances in euro-terms to €941bn from €974bn at end-2016.
"EMEA companies' total cash balances have grown in all but one year since 2011, partly due to organic growth and despite their net M&A spending nearly tripling to a seven-year high of €80bn in 2017 from €29bn in 2016," said Richard Morawetz, Group Credit Officer for the Credit Strategy and Standards Group at Moody’s.
British American Tobacco (Rated as ‘Baa2 stable’ by Moody’s) made the largest M&A spend with its reported debt increasing by £20bn following its acquisition of Reynolds American (Rated ‘Baa2’) in July 2017.
On the sector front, energy is seen holding on to the most cash at €162bn, or 17% of the 2017 total. On an average company basis, the automotive sector has the highest cash balance, reflecting the inclusion of companies such as Volkswagen (A3 stable) and Daimler (A2 stable), which are habitually among the top-10 cash holders in EMEA.
Unlike the US where the top-five cash holders hold about one-third of the total cash, cash concentration of the top 5 in EMEA is significantly lower at around 14%. The cash holdings of the top 10 companies fell to €200bn in 2017 from €214bn in 2016.
Moody’s said cash holdings by ratings category shifted more to investment grade following upgrades, with a notable shift to its ‘Baa’ rated category from the ‘Ba’ category. Investment-grade companies held 82% of the total cash in 2017, representing an annualised 8% hike from 2016.
Companies domiciled in the Netherlands (8%) and Switzerland (4%) had relatively high cash holdings. “However, country of domicile does not necessarily reflect the country of operations, and hence the location of the cash. Both countries are the domicile for some large multinationals,” Moody’s noted.
