September 14, 2021 (MLN): Rating performance in the global non-financial corporate sector is improving, with the number of issuer upgrades exceeding downgrades in January-July 2021, Fitch Ratings said on Monday.
The rating agency noted that its corporate portfolio is currently showing more upgrades than downgrades, compared to the last year when the number of downgrades hit a 20-year high.
Pandemic- and lockdown-related pressures led to the downgrade of nearly 20% of ratings in Fitch’s corporate portfolio in 2020, with 7% of issuers downgraded by multiple notches. However, as pandemic-related restrictions have relaxed and as many economies return to growth, the most severe credit pressures have abated, and the number of positive rating actions has started to rise.
“The corporate portfolio is now showing a higher number of upgrades than downgrades for the first time since 2017,” the rating agency said.
According to the rating agency, only a small share (22%) of upgrades so far in 2021 have been reversals of rating actions in 2020, while most rating improvements have been driven by issuers’ resilient financial performance during the pandemic or their more conservative approach to funding.
Upgrades in developed markets are a key contributor to the growing number of positive rating actions. The ratio of corporate upgrades to downgrades in developed markets was 1.3x in January-July 2021, while the balance was almost even in emerging markets. Rating pressures in developed markets pushed the overall number of downgrades to a record high in 2020, it added.
Natural resources and commodity sectors, including oil and gas companies, have benefited from healthy commodity prices that recovered quickly after the initial shock at the start of the pandemic. The increase in working from home has spurred the need for house extensions and renovations, supporting demand for building materials. The pandemic has also increased the demand for healthcare products and services. These industries have recorded more frequent upgrades so far in 2021 than most other sectors, it concluded.
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