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Why EMEA investment-grade companies' debt maturities are spiking

Publication Date: 26 Jun 2018 - By ReachX Team By ReachX T.

Equity Fundamental Macro FX & Rates FX Fixed Income/Credit Middle East UK EU


Debt maturing in the next four years has jumped to $1.4 trillion in 2018 from $1 trillion in 2017 for investment-grade, non-financial companies in Europe, Middle East and Africa (EMEA), according to Moody's.

In its annual report, examining the debt maturity profiles and refinancing requirements of 407 investment-grade, non-financial EMEA companies, the rating agency said they hold about $9 billion of debt each, compared with $7.8 billion the previous year. 

Aggregate debt totalled $3.7 trillion, up from $2.9 trillion in 2017, with the differences driven largely by exchange rate movements and ratings upgrades. Despite this leap, the debt maturity profile remains well distributed with an average of $3.5 billion per company maturing in the 2019-2022 period, Moody's said.

"Debt maturities in the investment grade space over the next four years have risen significantly, mainly due to exchange rate movements and several companies, particularly in Russia, moving to investment grade over the past year," says Richard Morawetz, Group Credit Officer for the Credit Strategy and Standards Group at Moody’s and author of the report.

Disintermediation, or the trend of a rising share of bond debt relative to bank debt, reversed slightly in 2018, with the share of bank debt increasing for the first time since 2010.

The earlier trend was attributed to a number of factors, including low interest rates and recent bond purchases by central Banks. These incentives may be receding, as exemplified by the ECB's plans to cease net new asset purchases post-December 2018.

On a sector-by-sector basis, utilities account for the largest share of long-term debt (22%), followed by energy (13%), transportation (11%) and consumer products (10%). The energy sector's share has increased reflecting the inclusion of a number of recently upgraded, large-scale Russian oil and gas companies such as Gazprom and Oil Company Rosneft.

On a country-by-country basis, Russian investment-grade issuers have been factored into the overall debt figures for the time since 2015.

Companies rated ‘Baa’ by Moody’s account for 53% of total debt, up from 50% in 2017. The top five companies account for nearly 20% of annual debt maturities in 2019-22, the top 10 for nearly 30% and the top 25 for about 50%.


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