Moody’s: EMEA companies’ cash reserves exceed $1 trillion

Corporate cash piles at EMEA non-financial companies topped $1 trillion for the second consecutive year in 2017, despite their net M&A spending jumping to a seven-year high, says Moody’s Investors Service in a report published today.

Exchange rate gyrations contributed to a slip in cash balances in euro-terms to EUR941 billion from EUR974 billion at end-2016.

This report looks at the cash holdings of 757 rated companies in EMEA as well as the sources and uses of this cash.

Moody’s report, “Non-financial companies — EMEA: Cash pile fairly stable at €941 billion; net acquisition spending at seven-year high,” is available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release. The rating agency’s report is an update to the markets and does not constitute a rating action.

“EMEA companies’ total cash balances have grown in all but one year since 2011, partly due to organic growth and despite their net M&A spending nearly tripling to a seven-year high of EUR80 billion in 2017 from EUR29 billion in 2016,” says Richard Morawetz, a Moody’s Group Credit Officer for the Credit Strategy and Standards Group and author of the report.

British American Tobacco p.l.c., (BAT) (Baa2 stable) made the largest M&A spend with its reported debt increasing by GBP20 billion following its acquisition of Reynolds American Inc. (Baa2) in July 2017.

On the sector front, energy is holding on to the most cash at EUR162 billion, or 17% of the 2017 total. On an average company basis, the automotive sector has the highest cash balance, reflecting the inclusion of companies such as Volkswagen Aktiengesellschaft (A3 stable) and Daimler AG (A2 stable), which are habitually among the top-10 cash holders in EMEA.

Unlike the US where the top-five cash holders hold about one-third of the total cash, cash concentration of the top 5 in EMEA is significantly lower at around 14%. The cash holdings of the top-10 companies fell to EUR200 billion in 2017 from EUR214 billion in 2016.

Cash holdings by rating category have shifted more to investment grade following upgrades, with a notable shift to the Baa category from the Ba category. Investment-grade companies held 82% of the total cash in 2017, an 8% hike from 2016.

Companies domiciled in the Netherlands (8%) and Switzerland (4%) have relatively high cash holdings. However, country of domicile does not necessarily reflect the country of operations, and hence the location of the cash. Both countries are the domicile for some large multinationals.