The liquidity of non-financial corporate issuers in EMEA has begun to improve on the back of a slowly recovering global economy. The fragility and vulnerability of the financial markets with respect to corporate liquidity is, however, expected to persist well into 2010, said Moody's Investors Service in a new report titled “Liquidity of EMEA corporate issuers: Improving, but uncertainties remain going into 2010”. “Although the percentage of issuers expected to face liquidity weakness over the next 12 months has slightly increased, Moody's overall concerns have eased compared to six months ago,” said Jean-Michel Carayon, a senior vice president in Moody's Corporate Finance Group and co-author of the report. From a study of 463 corporate borrowers rated B3 and above, 83 percent continue to demonstrate sufficient liquidity to cover the next 12 months' debt maturities (totaling $528 billion) and other cash outflows. For the 17 percent of corporate borrowers that demonstrate liquidity inadequacies, Moody's believes that the generally heightened level of concern has abated, with the overall level of funding gaps narrowed since March 2009. While Moody's expects investment-grade and solidly positioned speculative-grade issuers to benefit from improved bond market access going forward, risks from potential credit shocks may temporarily affect market access. “For weakly positioned issuers at the lower end of the rating scale external funding is likely to remain constrained during 2010” warned Sabine Renner, a Moody's analyst and co-author of the report. In particular, lower rated issuers are susceptible to tighter bank lending standards and general credit availability. “The future shape of the banking landscape and the sustainability of bond investments will continue to influence the structure of non-financial corporate balance sheets and the profile of future debt maturities,” Carayon added. Meanwhile, Moody's on Thursday changed the outlook on Lebanon's B2 government bond issuer ratings to positive from stable. The rating action was prompted by a continuation of the positive trends that led Moody's to upgrade Lebanon's sovereign ratings in April: namely, the continued improvement in external liquidity, the strengthened ability of the country's resilient banking system to finance fiscal deficits, and an amelioration of the domestic political situation with the formation of a consensus government in November. Moody's has also changed the outlook to positive from stable on Lebanon's B2 country ceiling for foreign currency bank deposits and B1 country ceiling for foreign currency bonds. “Lebanon's public finances have proven resistant to serious political and economic shocks in recent years. This is due to the strengthened resilience of the country's banking system, which is the government's primary creditor,” said Tristan Cooper, vice president/senior credit officer and Moody's head analyst for Middle East sovereigns. “Confidence in Lebanon's financial system has been bolstered by the central bank's large and growing cushion of foreign exchange reserves and its effective regulation of domestic banks.” Moody's noted that the central bank's foreign exchange reserves rose to $24.1 billion in October 2009, up from $9.8 billion at the end of 2007. This places the country in a more favorable position to absorb financial shocks while also providing ample cover for the government's maturing foreign currency debt. Moreover, the central bank holds a large amount of gold, worth $9.6 billion in October, although the liquidity of the gold could potentially be constrained given that parliament must approve its sale. The maturity structure of government debt is also favorable; following a voluntary debt exchange in March 2009, the government does not face a significant Eurobond maturity until March 2010. In 2010 as a whole, the government's Eurobond maturities amount to around $2 billion. Lebanon's commercial banks remain liquid, are well-capitalized and have continued to attract deposits from abroad. Total bank deposits increased by around 20 percent in the 12 months to October. Moody's notes that Lebanon's banks were not exposed to toxic financial assets or failed western financial institutions during the global financial crisis, partly because of stringent central bank regulations. While there is a risk that bank deposits could fall in the event of a serious political or economic upheaval, Moody's observed that they have displayed a high level of stability in previous crises.
