Coface Country Risk Assessment

1
Coface Country Risk Assessment
Sylvia Greisman Chief Economist, Coface
2
The Country Risk _at_rating

• ? The country risk _at_rating assesses the average
  risk of payment default by companies in a given
  country
• It combines the different aspects of country
  risk such as economic, financial and political,
  with the payment experience on companies
  calculated from Cofaces internal database
• ? There are seven different rating grades A1 to
  A4, B, C, D
• ? The ratings are regularly updated on 154
  countries

Ratings, indicators of payment incidents and
country risk assessment are available on
www.cofacerating.com
3
Economic sectors _at_rating

• ? The sector risk _at_rating assesses the average
  risk of payment default by companies in a given
  sector in short-term commercial transactions
• ? To calculate sector _at_rating Coface combines
  three types of measurements economic
  vulnerability of the sector, company financial
  solidity, payment experience on short term
  transactions, as reflected in Cofaces internal
  database
• ? There are ten different rating grades ranging
  from A for the lowest risks to D for the
  highest risks
• ? The ratings are regularly updated for 14
  economic sectors

Ratings, indicators of payment incidents and
sectoral risk assessment are available on
www.cofacerating.com
4
2007 A moderate slowdown

• After the past years effervescence, the
  economic slowdown will be moderate and centred on
  the US.

• Growth in emerging countries will slow in line
  with less buoyant global demand. However, it will
  remain driven by robust domestic demand.

Emerging countries growth
6
4

2
0
2005
2006
2007
5
Coface basic diagnosis remains no global credit
crunch in 2007
6
Industrialised countries No credit crunch but
certain risks not to be neglected ...
? The drop in property prices in the US and in
some European countries could exacerbate the
economic slowdown
? The dramatic rise in LBOs exposes companies and
investment funds to financial difficulties in the
case of an intensified economic slowdown.
? US current account deficit maintains the risk
of a significant USD depreciation
7
United States (A1?)Moderate payment
deterioration is expected
Economic growth and payment incident index
Payment incident index 12 months moving rate
7
300
6
250
5
200
4
150
3
100
2
50
1
0
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007 (f)
Economic growth rate
Payment incident index
Payment Incident index 100 World 1995-2000 basis
8
United States (A1 ?)Several sectors have to be
watched closely
2007 sectoral risk scale
HIGHEST RISK
D
C-
C
Automobile
Clothing / Textiles
C
Air transport
B-
Information technology ?
B
Construction?
B
Telecommunications
Pharmaceuticals ? / Mass retail ?
A-
Mechanical engineering / Paper ? / Chemicals ?
A
Steel
Electronic components
A
?
Downgraded
sector
LOWEST RISK
9
Japan (A1)Stabilisation of credit risk at a low
level in 2007
Economic growth and payment incident index
Payment incident index 12 months moving rate
Payment Incident index 100 World 1995-2000 basis
10
Japan Export sectors are still benefiting from
dynamic regional demand and strong competitivity
2007 sectoral risk scale
HIGHEST RISK
D
C-
Clothing
C
C
Information technology ? / Construction
B-
Air transport
B
Textiles
B
Electronic components / Telecommunications
Pharmaceuticals
A-
Mass retail ?
A
Mechanical engineering / Automobile / Steel
Papier / Chemicals
A
? Upgraded sector ? Downgraded sector
LOWEST RISK
11
Western Europe Expected moderate increase in
payment incidents
Economic growth and payment incident index
7
300
6
250
5
200
4
150
3
100
2
50
1
0
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007 (f)
Economis growth rate
Payment incident index
Payment Incident index 100 World 1995-2000 basis
12
Western Europe A still uneven economic growth
13
Payment experience in Europe Italy is back to
 normal , beware of overheating risks in Spain
Payment Incident index 100 World 1995-2000 basis
14
Industrialised countries USA now on negative
watch
15
Western Europe Construction and automobile
sectors are particularly exposedMass retail is
recovering
2007 sectoral risk scale
HIGHEST RISK
D
C
-
Textiles
C
Clothing
C
B
-
Automobile ? / Information technology ?
B
Electronic components
Air transport
Telecommunications ? / Paper / Construction ?
B
A-
Mass retail ?
Pharmaceuticals / Chemicals / Mechanical
engineering
A
Steel
A
? Upgraded sector ? Downgraded sector
LOWEST RISK
16
Coface Risk AssessmentEmerging Countries
Sylvia Greisman Chief Economist, Coface
17
Emerging countries a healthier financial
situation and still robust growth expected in 2007

• Several years of robust growth
• GDP growth ()

• and current account surpluses
• Current account balance (GDP)

? Have lead to impressively shrinking external
debt ratios
18
but inequalities between regions
19
Central Europe - Turkey a sustained growth
20
Central Europe, Turkey favourable to
construction, automotive and steel industries
21
But weaknesses remain
? High budget and current account deficits
? weigh on foreign indebtedness, notably the
private sectors
22
Some currencies are particularly exposed to
depreciation risk ...
Low probability(35)
Average probability(50)
Very high probability(60)
Very low probability(20)
23
Financial vulnerabilities in Hungary (A3) and
Turkey (B)
Scale of Risk ? Turkey B ? Hungary A3
Payment incident index 12 months moving rate
Payment Incident index 100 World 1995-2000 basis
24
Central Europe Changes in ratings
25
CIS Buoyant economic growth but weak business
environment
Rule of law (World Bank classification 2005)
Singapore
2,00
Hong Kong
1,50
Czech Republic
South Korea
Slovenia
Taiwan
1,00
Hungary
Israel
Saudi Arabia
South Africa
Poland
0,50
Thailand
Turkey
Sri Lanka
India
Croatia
Egypt
0,00
Bulgaria
-0,50
Romania
Brazil
China
Vietnam
Mexico
Armenia
Phillipines
Moldova
Ukraine
Argentina
Lybia
Iran
Algeria
Bosnia
-1,00
Serbia
Georgia
Russia
Pakistan
Albania
Kazakhstan
AzerbaIjan
Indonesia
Bengladesh
Belarus
Yemen
Kirghisztan
-1,50
Venezuela
Nigeria
Congo
Uzbekistan
Sudan
Turkmenistan
Zimbabwe
Ivory Coast
-2,00
26
Russia (B) and booming corporate debt
27
CIS Changes in ratings
28
Emerging Asia continuing dynamic growth
supports companies financial situation
Economic growth and payment incident index
Payment incident index 12 months moving rate
Payment Incident index 100 World 1995-2000 basis
29
Emerging Asia highlights
? Robust current account surpluses
? Have led to high forex reserves creating
massive domestic liquidity
30
But some sectors face fierce competition and in
China, watch for overcapacities
Highest risk
D
C
B
Steel
B
Automobile
Û
Information
technology
Telecommunications
Û
A
-
Construction
Clothing
Textiles
A
Û
Electronic
components
/
Mechanical
engineering
Chemicals
/
Paper
Mass
retail
/ Pharmaceuticals
A
?
Downgraded
sector
?
Upgraded
sector
Lowest risk
31
Competition on the domestic market and
problematic corporate governance weigh on risks
in China
First Results of 2006 Coface China Survey
32
China A3- India A3- Risks remain at a
manageable level
33
Asia Changes in ratings
34
Latin America Companies benefit from a still
robust domestic demand
Economic growth and payment incident index
Payment Incident index 100 World 1995-2000 basis
35
Latin America Highlights
? Several years of current account surpluses have
led to a significant reduction in debt ratios
? Elections have underlined the rise in claims
for wealth redistribution
36
Brazil A4 Argentina C Diverging risk level
Argentina
Brazil
low risk manageable
significant high risk
Companies' payment
behaviour
Growth vulnerability
Sovereign financial
vulnerability
External overindebtedness
Foreign currency liquidity
crisis
Banking sector's fragilities
Geopolitical and governance
vulnerabilities
37
Latin America Changes in ratings
38
Northen Africa Middle East Companies benefit
from a booming activity
Economic growth and payment incident index
Payment Incident index 100 World 1995-2000 basis
39
Northen Africa Middle East Highlights
? But geopolitical tensions in the ME countries
have negatively impacted the risks
? Large current account surpluses
? Have led to significant debt reduction
40
Israel (A4) Saudi Arabia (A4) Good
companies payments despite geopolitical tensions
Payment incident index 12 months moving rate
41
North Africa, Near and Middle East Changes in
ratings
42
Sub Saharan Africa Oil and commodity output
bolsters growth, but companies payment
experience is not improving
Economic growth and payment incident index
43
Sub-Saharan Africa Highlights

• Commodity exports and debt cancellation have
  improved debt profile

? and important institutional fragilities remain
? but current account deficits are still high
44
South Africa (A3) Nigeria(D)
45
Sub-Saharan Africa Changes in ratings
46
Range of regional risks
47
No credit crunch but certain risks not to be
neglected ...

• Many of them linked to an abundance of liquidity
  
• ? Real estate bubbles
• ? Stock market bubbles
• ? Company over-indebtedness
• or to other imbalances
• ? Current account deficits and the attendant
  currency depreciation risk
• ? Industrial overcapacities in China
• ? Geopolitical tensions and volatility in oil
  prices