Fitch: More Australia Firms in Credit-Positive Zones on Debt Cut

(The following statement was released by the rating agency)Link to Fitch Ratings' Report: 100 Australian Listed Corporates: Credit Change Zoneshttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881596SYDNEY, June 06 (Fitch) Seventy-six of Australia's leading 100 non-financial corporates by market capitalisation are in the credit-positive blue or purple zones of EBITDA growth exceeding that of net debt over the projected FY15-FY17 period. Conversely, 24 are in the credit-negative red or orange zones where net debt is rising at a faster pace than EBITDA.With more than 75% of Australian corporates in the projected credit-positive zones, the market is clearly expecting the credit profile of most corporates to improve in FY17 compared with FY15. We believe this is being driven more by projected lower net debt levels, as opposed to projected higher EBITDA generation. Fitch Ratings' analysis is based on the 100 largest non-financial corporates on the Australian Stock Exchange by market capitalisation, using Bloomberg's historical data and consensus estimates (BEst).This is an improvement from our similar report in May 2015 when sixty-nine corporates were in the credit-positive zones and 31 were in the credit-negative zones over the then-projected FY14-FY16 period. It is also a dramatic shift from the actual historic FY13-FY15 case, where there was a more even balance of 53 corporates in the positive-credit zones and 47 in the negative-credit zones.A key highlight of the report is the Venn diagrams illustrating the overlapping areas of our change in EBITDA and net debt Top-10 Lists, particularly the "Blue Joy Zone" of strong EBITDA increases and debt paydown, and the "Red Pain Zone" of EBITDA decline and rising net debt. Qantas, Origin Energy and Telstra are in the projected "Blue Joy Zone" of higher EBITDA and debt paydown. In this year's report, no company is in the projected Top-10 "Red Pain Zone" of EBITDA decline and rising net debt. However, beyond our Top-10 Venn Diagram analysis, Woolworths, AP Eagers, and Seven Group are in the projected red zone.The overall net debt to EBITDA leverage ratio for the 100 Australian corporates is forecast, based on BEst projections, to rise to 2.1x in FY16, from 1.4x in FY14, as aggregate net debt continues to rise and aggregate EBITDA falls. However, BEst is projecting the direction of net debt and EBITDA to reverse in FY17, and overall leverage to fall back to 1.8x. We believe this projected improvement in overall leverage has more to do with lower capex and more prudent capital management activities. Notably, the aggregate portfolio's 5% projected reduction in net debt over FY15 to FY17 is being driven by major corporates in the metals & mining and energy sectors. Specifically, the major companies forecast to be "Net Debt Shedders" over the FY15 to FY17 period include Fortescue Metals, BHP Billiton (LON:BLT), Origin Energy, Rio Tinto (LON:RIO), Newcrest Mining, Woodside Petroleum and AGL Energy. Most of these companies are projected to counter the negative impact on their financial profile of lower EBITDA from weak commodity prices with capex curtailments, asset sales, dividend cuts and equity raisings. The report contains a number of historical and projected top-10 net debt and EBITDA lists, which highlight corporates undergoing the most significant changes on an absolute basis. It also contains scatter charts showing, on a relative basis, the projected percentage in both EBITDA and net debt for all 100 companies.Fitch publicly rated 15 Australian corporates as of end-May 2016. Four of these are included in the credit-negative red or orange zones, and 11 are included in the credit-positive blue or purple zones, based on BEst projections. The report includes specific commentary on these 15 corporates, along with a complete list of their positive and negative rating triggers.The report is available at www.fitchratings.com or by clicking on the link above.Contact: Matt JamiesonHead of APAC ResearchCorporate Ratings GroupFitch Australia Pty Ltd+61 2 8256 0366Level 15 77 King Street Sydney NSW 2000 AustraliaVicky MelbourneHead of Industrials South East Asia & Australasia Ratings+61 2 8256 0325Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com.Additional information is available at www.fitchratings.comALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.