OREANDA-NEWS. Fitch Ratings says the number of EMEA corporate issuers that have been upgraded to investment grade (rising stars) over the last five years have slightly outnumbered issuers that have seen their ratings fall to speculative grade (fallen angels).

During this period, 19 Fitch-rated EMEA corporates have been upgraded to 'BBB-' or above. Improvements in operating performance, business profile or cost-saving programmes have boosted the cash generation and lowered the leverage of companies such as Pernod Ricard, GKN Holdings, Renault and Taylor Wimpey. Industry consolidation and the need to provide wider product offerings drove M&A activity in the building materials and telecoms sectors, leading to the upgrades of Lafarge SA, Cableuropa and Kabel Deutschland.

However, slowing growth in emerging markets (EMs), commodity price weakness and limited rating headroom for many EMEA corporates suggest that rating risk remains weighted to the downside. Last year has seen a widening in the disparity between EM and developed European corporates, and faltering EM growth has now become the greatest risk to corporate ratings.

Over the last year downgrades in the Fitch rating portfolio have dominated upgrades across all corporate sectors. The differential between upgrades and downgrades has also reached its widest level since 2011, driven by challenging conditions across emerging markets and low commodity prices. These trends are likely to maintain rating pressure on EMEA corporates in 2016.

The buffer corporates have to absorb weaker performance at their current ratings also remains thin, although it is slowly improving. At end-2015 median headroom to the tightest downgrade guidelines for EMEA corporates was 5.1% compared with just 3% in 2014.

The report includes case studies discussing rating drivers for select crossover credits (rated between 'BBB-' and 'BB+'), including notable fallen angels such as Anglo American Plc, ArcelorMittal SA, ThyssenKrupp AG and Tesco Plc. Each case study examines the causes for recent rating actions, and what it would take for each company to either be upgraded to investment grade, or downgraded to speculative grade.