Credit Insurer Coface Downgrades 28 Countries, 19 on Negative Watch

April 10, 2009

Trade credit insurer Coface notes that the current “credit crisis, which entered its second phase in the fourth quarter of 2008, is worsening in all regions. After observing a decline in the average financial strength of companies in 22 countries in January of this year, Coface has now performed downgrades and negative watches for 47 countries.”

The bulletin added that only a “few areas – India, Brazil, China, the Middle East and North Africa – are maintaining their previous risk levels.” Three of these “BRIC” countries India, Brazil and China are in fact “relatively resilient.”

“India’s A3 rating has remained unchanged since December 2004,” said Coface. “The country continues to be driven by internal demand and has been little affected by the crisis in international trade. Indian companies are facing the most moderate slowdown of the BRIC countries (5 percent growth in 2009, which is 4 points below 2007 level.)

“Brazil (A4 rating since December 2006) has a diversified economy. Here, corporate debt in foreign currencies has not been as detrimental as it has in Central Europe.”

Coface said it is “maintaining the negative watch placed on China (rated A3) in January, due to company vulnerability in a context of overcapacity, stiff competition, and reduced margins. The adoption of measures to stimulate the economy and positive signs in the first quarter (an increase in credit and a rise in manufacturing output) has lead Coface to maintain the January rating.

“Russia (downgraded to C) is hardest hit of these four countries. It will have to deal with a growth shock of 11 points, which is the highest of the major economies (from 8.1 percent in 2007 to -3 percent in 2009.) Russian companies have very substantial foreign currency debts and are therefore badly affected by the credit crunch. Coface is continuing to record payment defaults in Russia this year.”

The analysis indicated that “countries of North Africa seem to be weathering the crisis relatively well. Tunisia and Morocco have diversified economies and banking systems with little exposure to toxic assets. So far, Coface has not observed any deterioration in company payment behavior. The oil-producing countries of North Africa and the Middle East entered the crisis from a position of enhanced financial strength (due to the oil boom of 2003-2008), from which the whole region has benefited. The area’s ratings remain unchanged.”

“The peak of the crisis should be reached in the first half of 2009,” stated Fran├žois David, Chairman of Coface. “Our main scenario still forecasts the end of the credit crisis in the second half of 2009. We anticipate a recovery in early 2010, albeit a sluggish one due to the long process of debt reduction by the private economic agents: individuals and companies.”

Source: Coface – www.coface.com

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