The liquidity of rated EMEA non-financial companies remains strong in 2018, despite ongoing geopolitical risks around currency volatility, sanctions and the perennial Brexit issue, said Moody's Investors Service in a new report.

"Geopolitical risks notwithstanding, liquidity strength remains high among EMEA companies with 96 per cent having enough funds to tide them over for the next 12 months assuming no access to fresh funding, versus 94 per cent in 2017," said Richard Morawetz, a Moody's Group credit officer for the Credit Strategy and Standards Group and author of the report.

The slight year-on-year boost to the numbers partly reflects ratings withdrawn for companies following a default, and which had previously exhibited weak liquidity, said the report titled "Non-financial companies -- EMEA: Sustained overall liquidity strength, despite geopolitical risks”.

 Financial covenants in loan documentation weakened in 2017, which is negative from a lender's perspective insofar as it reduces creditor protection, but can also reduce, or delay, potential liquidity pressure emanating from a covenant breach.

The liquidity of rated Russian companies remains solid, although US sanctions could result in a greater reliance on domestic funding. In Turkey, where the corporate sector borrows extensively in foreign currencies, rated companies are generally expected at this time to have sufficient liquidity despite the recent weakening of the Turkish lira.

However, the corporate sector will remain exposed to any accentuated currency weakness if it increases the overall debt burden relative to earnings.

The Brexit referendum in June 2016 has not had a discernable impact on the liquidity of UK companies. Where liquidity weakness exists, it is more attributable to other factors, such as excess capacity or on-line competition in the retail sector.

Overall, there has been a rise in total company debt - $4.8 trillion from $4 trillion in 2017 - mainly due to the euro and British pound strengthening against the US dollar. Average company debt stands at about $4.8 billion versus $4.4 billion in 2017 but this figure would have been virtually unchanged using constant exchange rates.

Utilities, energy, telecommunications and automotive companies account for half of the total debt outstanding, with aggregate short-term debt falling due within 12 months at $783 billion, or 16 per cent of total debt, similar to last year.

The technology and pharmaceutical sectors' free cash flow (FCF) generation over the next 12 months is forecast to remain strongest, with capital intensive industries remaining the weakest. While FCF can affect liquidity needs, there is no clear correlation between FCF expectations and Moody's overall liquidity assessment. For example, FCF for many utilities is forecast to be negative in 2018, but the large majority retain strong liquidity profiles.

The rating agency's report is an update to the markets and does not constitute a rating action. – TradeArabia News Service