Non-financial corporates in Europe, Middle East and Africa region held around $1.06 trillion in cash at the end of June 2014, down almost three per cent from the $1.09 trillion held in December 2013, but still remains well above levels held during the financial crisis, Moody’s said.
The ratings agency said in a special comment that since 2008-2009 financial crisis, EMEA companies’ cash balances have increased by around 40 per cent as companies have sought to reduce their reliance on banks, secure refinancing in advance of debt maturities and shield themselves from turmoil in the capital markets.
The one-trillion dollar cash pile, which only relates to companies rated by Moody’s, is predominantly held by cash-rich sectors like automotives, oil and gas and utilities. It dipped by 2.8 per cent in the six-month period to end-June 2014, but still remains well above levels held during the financial crisis.
“While many companies built up their war chests in the wake of the 2008-09 financial crisis to lessen their dependence on banks and weather potential capital market closures, current macroeconomic stability has made it less critical to hold substantial cash balances,” said Jean-Michel Carayon, a Moody’s senior vice-president and author of the report.
“Nevertheless, we expect that companies will continue to do so as a liquidity buffer and to refinance upcoming debt.”
In its report, Moody’s notes that the top-10 holders of cash account for $228 billion or 22 per cent, of the total cash pile. The top five cash kings are Volkswagen (A3 positive), OJSC Gazprom (Baa1 negative), BP (A2 negative), Electricité de France (Aa3 negative) and Total ((P)Aa1 stable), all of which have at least $22 billion (€16 billion) in cash.
The energy (including oil and gas), automotive, telecommunications and utilities sectors are the most cash-flush industries in Europe, with $645 billion or 61 per cent of the corporate cash total.
The energy sector has the largest cash pile, at $185 billion or 17 per cent of the total, according to the report
Moody’s notes that the uptick in M&A activity in 2014 has had a limited impact on cash balances as companies have taken advantage of low interest rates and the ample liquidity to finance a large proportion of such transactions through debt (or equity in some cases) rather than cash.
Moody’s also notes that operating cash flows are mainly used to finance capex.
Despite cutting back spending on capex in 2009 and 2010, it still remained the single largest item of expenditure for companies from 2008 to 2013.
The rating agency expects that spending on capital expenditure will remain fairly flat amid weak economic growth in the euro area.
Moody’s analysis is based on 647 non-financial corporate groups that it rates and that are domiciled in Europe, the Middle East and Africa.
