ANKARA
Companies in Turkey, as in most emerging markets, are seeing better conditions, credit rating agency Fitch said in a report released on Wednesday.
"Fitch expects gradually improving market conditions across the Euro-zone to drive a slight improvement in EMEA corporates’ credit metrics in 2015. The worst seems to have passed for European corporates, with management teams increasingly focusing on future growth, compared to a widespread cost-consolidation phase post-2008," the report, entitled "Brighter Outlook For EMEA Corporate Cash Generation," said.
"But the rosier economic outlook will not, however, drive a sharp increase in capital investment in 2015 – we expect capex to remain close to 2014 levels in the near term, before accelerating from 2016 onwards. Excess cash will be primarily employed to fund rising strategic mergers and acquisitions (M&A) – increasingly the weapon of choice large strategic companies turn to in order to boost revenues in weak demand conditions," Fitch warned.
Because funds for investment are tight, large-scale M&A in EMs such as Turkey, India, Brazil, Indonesia and South Africa may become increasingly difficult, Fitch said.
"These countries remain vulnerable to capital outflows and currency weakness. This potential uptick from investment rebalancing may gain momentum as several EM companies, especially Chinese ones, increase offshore investments. Relatively low valuations across western European markets with well-established brands will sustain this trend," the report said.
Turkish companies would be most at risk in a foreign-exchange stress scenario because of their relatively high level of FX borrowing and lack of FX hedging, Fitch pointed out.
"In addition, greater foreign exchange volatility may further hamper EM corporate credit profiles in 2015, although effects will vary depending on issuer-specific FX debt and cash-flow profiles."
However, EMEA corporates are challenged, Fitch said. "Risks remain weighted to the downside amidst the persistent threat of eurozone deflation and the renewed emergence of EM risks in 2014, which will increase pressure on EM issuers and highly leveraged companies in the ‘B’ rating category. Weaker EM growth expectations, which initially surfaced in 2013 as China started to rebalance its economy from investment-led to consumption-led, have been exacerbated since mid-2014 by the stronger US dollar and a flight of capital to recovering developed markets. This led to sharp currency falls across EMs in 2014 and early 2015." the report said.
Nonetheless, Fitch said that the agency expects slowly improving market conditions to result in slightly stronger revenue growth and improving profitability across EMEA corporates in 2015 and 2016.
