Global corporate issuer upgrades exceeds downgrades as pandemic troubles ease: Fitch

RATING performance in the global non-financial corporate sector has improved for the period of January to July this year, with the number of issuer upgrades exceeding downgrades, Fitch Ratings said.

The credit ratings agency's corporate portfolio is now showing a higher number of upgrades than downgrades for the first time since 2017.

As a percentage of all ratings, upgrades for the first seven months of 2021 stood at 5.7 per cent, while downgrades came in at 5.1 per cent.

Fitch noted in a report released on Monday that most of these upgrades were not reversals of rating actions taken last year, when there was a "record deterioration" in corporate ratings.

Only 22 per cent of upgrades thus far in 2021 have been reversals of rating actions in 2020. Most rating improvements were driven by issuers' resilient financial performance during the pandemic or their more conservative approach to funding, said Fitch.

In 2020, the number of downgrades came in at a 20-year high as pandemic and lockdown-related pressures led to the downgrade of nearly 20 per cent of ratings in Fitch's corporate portfolio. Some 7 per cent of issuers were downgraded by multiple notches.

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However, things have taken a turn for the better amid the easing of Covid-19 pandemic-related restrictions. Many economies around the world have also returned to growth, said Fitch, which has in turn meant that the most severe credit pressures have abated and the number of positive ratings actions has started to rise.

Upgrades in developed markets were a key contributor to the spike in positive rating actions. There were 80 upgrades in these markets and 63 downgrades. In 2020, rating pressures in developed markets were the primary reason for a record high in terms of downgrades. The number of downgrades last year came in at 278 versus just 48 upgrades.

In the emerging markets, downgrades so far in 2021 have outpaced upgrades 38 to 33.

Among the reasons for corporate updates, changes in financial profiles was the most popular at 54.9 per cent. Other reasons included mergers, acquisitions and disposals at 11.5 per cent, as well as funding, liquidity and coverage at 8.8 per cent.

Fitch found that certain sectors have recorded more frequent upgrades so far in 2021 than others.

For instance, natural resources and commodity sectors, including oil and gas companies, benefited from healthy commodity prices that recovered quickly after the initial shock at the start of the Covid-19 pandemic.

The pandemic has also led to an increase in working from home trends that have spurred the need for house extensions and renovations. This has in turn supported demand for building materials.

Meanwhile, healthcare products and services have also enjoyed a lift in demand due to the pandemic.