The instability and uncertainty that have been installed in the markets due to the Covid-19 is unmatched. Investors have endured huge losses and the way, despite having been cleared in the heat of the news about the relaxation of the confinements in different countries of the world, is still not clear.
In this difficult context, the experts of the rating agency Fitch Ratings have been thoroughly used in their task of measuring the risks that threaten hundreds of companies. The main message that is inferred is that, in his opinion, the damage of the pandemic will take time to be contained, the economy will need time to recover from the hard blow and companies will be forced to change due to the magnitude of the challenge.
"We've never seen such a rapid and profound shock at the global economy level before," begins Brian Coulton, chief economist at Fitch. According to the calculations that the agency manages, the US GDP has suffered a slowdown of 20% in relation to normal activity levels. "During the Great Depression, the US GDP fell 20% over three years, which is the same decline that has occurred in two or three weeks," he illustrates.
With this sudden drop in GDP, Coulton expects unemployment to skyrocket in many countries. Spain, due to the importance of the tourism sector in the economy and in employment, is more exposed if possible. The expert points out that he does not believe that GDP will recover its levels from the end of 2019 until well into 2021, while unemployment will not return to the figures prior to the Covid crisis until after next year.
In this future recovery and in the survival of companies in this crisis, governments and central banks will play a key role. In this sense, Coulton applauds the aid promoted by the US Federal Reserve to favor sufficient liquidity in companies.
Pilar Auguets, director of Iberian utilities at Fitch, places special emphasis on the importance of liquidity for companies. "From the credit analysis point of view, guaranteeing liquidity and cash management is the first line of defense or attack for companies and all measures aimed at guaranteeing it are welcome," says the expert.
After the liquidity, Auguets remembers that the day to day and the operations of the companies are coming. In his view, many will be forced to downsize to survive the slump in demand. “Those measures that are intended to make fixed costs more flexible, such as personnel costs, will have to be necessary post-Covid; it is not only liquidity, there are many things ”, he warns.
Auguets notes that over the past week, a third of Fitch's rating reviews conducted ended in a deterioration in the note. Of these affected companies, three out of four were rated below investment grade. "As one can imagine, companies below investment grade have a much weaker liquidity position and less flexibility to face sudden crises such as that of Covid," says the expert. In contrast, 60% of the investment grade companies that tested passed the test and both the rating and outlook were intact.
By sector, Auguets says that airlines, hotels, tourism, gaming, leisure and retail, especially non-food, will take the brunt of the blow. The industry has also suffered from the closure of factories and raw materials and oil have dealt a severe blow due to the fall in demand and the price war in the latter case. Although now, according to Auguets, the OPEC + agreement will help contain the damage despite not solving the underlying problem. On the side of the resistant sectors, pharmaceuticals, telecommunications companies and, above all, utilities, are the ones that, although not without problems, are more protected against the Covid crisis.
Within the Ibex and separate banks, Fitch has a public rating of 13 of its members. "We have lowered the rating of ArcelorMittal, the rest have been maintained, although we have changed some perspectives to negative," says Auguets. One of those companies with the worst future outlook is Repsol, which went from a positive perspective to a neutral one due to the outlook for crude oil prices. The expert reveals that they see her holding her triple B without problem.
Ferrovial was affirmed in its rating recently. Cellnex also, and although Telefónica and MásMóvil have not yet analyzed, Auguets stresses that it is a resistant sector. Regarding Enagás and Red Eléctrica, Fitch is "very calm" and does not foresee any changes in its rating in the coming months.
Spanish banks before the storm
Reduction
At the end of March, Fitch analyzed the Spanish banks. Cristina Torrella, director and head of Spanish banks, asserts that in the last four weeks they have reviewed more than 100 European banks and that, as a result, they have assigned a negative outlook to nearly half. "In the case of Spanish banks, it is clear that it has not been immune to this downward pressure on ratings or to the impact of the coronavirus crisis."
Under pressure
Torrella anticipates that Fitch is going to extend its forecast of a drop in the GDP of the Spanish economy by 2020, currently at 4%. According to him, the banks are not unaware of this deterioration and this explains the latest decisions about them. "Of 19 banking groups we reviewed, only six were placed on negative watch , there was only one rating downgrade and the rest were put in a negative perspective "
Reinforced position
The Fitch expert believes that the banks have reached this new crisis stronger. “To know which of the big banks is going to resist better, I would look at the rating. We have Santander with A- and a negative outlook; BBVA with A- and negative surveillance; to CaixaBank with BBB + and negative outlook, while Sabadell and Bankia enjoy a triple B with negative vigilance ”, he details.
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