As economies world over take steps to reopen after months of lockdown to contain the spread of covid-19, Fitch Ratings said recovery will be slow in first half of 2020 across regions as corporates grapple with revenue losses.
According to Fitch Ratings estimates, corporates worldwide may face a revenue loss of more than $5 trillion in 2020, compared to the $26 trillion of revenue reported in 2019. This may, however, extend to more than $8.5 trillion of revenue loss by end of 2021. “This estimate only covers our corporate rated portfolio, which in turn represents $14 trillion of the estimated $74 trillion corporate debt globally," Fitch said.
The oil and gas sector may account for the most revenue destruction in dollar terms, representing 40% of the aggregate revenue fall. “The critical and expensive nature of oil and gas extraction means that this sector dominates our lost-revenue projections, accounting for $1.8 trillion of lost revenue globally in 2020. This is six times greater than the impact on the more visibly affected retail sector," the ratings agency said. The most severe relative declines for any sector occur in the leisure and transport sectors, for which revenue losses is projected at 40%-60% in 2020.
About Indian oil and gas companies it said that fall in Indian fuel demand and refinery capacity utilisation will have reached its floor by the end of second quarter of 2020. The retail price have been constant since mid-March despite lower oil prices, mitigating the impact from inventory losses, before the Indian government increased duties from 6 May.
The revenue and earnings of Japanese, Korean and Indian automakers will improve gradually from third quarter of 2020 from lows in the second quarter, and that of European carmakers will likely recover gradually in second half of 2020, according to Fitch estimates.
The ratings agency feels that tariff hikes and the resumption of smartphone sales in India will drive a local recovery in third quarter of 2020, with the relaxation in lockdown measures.
Fitch expect a 5% reduction in 2020 plant load factors for renewable power generation companies and no change in regulated tariffs. “Liquidity support of $12 billion to (power) distribution companies from the Indian government will support generating companies’ cash collection," it said.
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