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2012-01-19 - 17:40:00 - DJ S&P Says Globalization Key For European Corporates

DJ S&P Says Globalization Key For European Corporates

   By Sarka Halas

LONDON (Dow Jones)-- Standard and Poor's Corp. said Thursday that globalized European companies have a stable outlook ahead of a mild recession in the euro zone because of their ability to capture growth outside the region, but that risks will weigh on firms that are unable to find growth globally.

"Corporates that trade goods and services globally should be better insulated from the turbulence engulfing the euro zone, irrespective of industry-specific cycles," said S&P in a report that was a part of its 2012 corporate outlook presentation Wednesday, adding that the BRIC countries--Brazil, Russia, India and China--as well as China's projected 8% growth and commodity-producing nations will remain a key support.

Currently, 18.8% of the corporate borrowers that S&P rates are on CreditWatch negative, a significant drop from the 2009 number, which was 37%. S&P said this is partly because companies are better prepared for a renewed downturn than in 2008 as a result of conservative financial policies and higher cash balances, but also because of an expanding global consumer base or global operations.

The ratings company says that European car manufacturers--such as BMW AG (BMW.XE)--that have become global players and whose product brand is in view of the middle classes in developing markets, are better placed than those with a higher percentage of sales in Europe, such as Peugeot SA (PEUGY), Renault SA (RNO.FR), and Fiat SpA (FIATY).

Indeed, European corporates that are from a stressed peripheral country, that are rooted in a local consumer base or mainly operating locally can expect to face the greatest challenges.

"Mirroring our expectation of diverging fortunes between locally and globally operating companies in 2012, we currently have a relatively higher proportion of negative outlooks or CreditWatch negative placements in utilities, telecoms, steel, oil and gas, and some transportation segments than at a similar point in the cycle in January 2008," said S&P.

Corporate ratings are at risk from sovereign downgrades, but they are also at risk from government austerity measures, undermined business and consumer confidence, and government intervention.

"Unorthodox intervention by governments could impact ratings and less support from governments could have a negative impact," said Paul Watters, head of corporate research at S&P, Wednesday, citing a cap on electricity prices in Spain and privatization in Italy as examples.

So while strong cash-balance sheets and a global presence have mirrored the stable outlooks on the ratings of some European corporates, there are no real safe havens, as a breakdown in the euro zone, a hard landing for China or a double-dip recession in the U.S. could trigger negative ratings actions, added S&P.

-By Sarka Halas, Dow Jones Newswires; +44 (0) 207 842 9236;

(END) Dow Jones Newswires

January 19, 2012 12:40 ET (17:40 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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