CEE corporates offer significant growth potential

Corporates in Central and Eastern Europe offer significant growth potential as a result of organic expansion across borders and mergers and acquisitions, rating agency Standard & Poor’s has said in a new piece of research.

In a report titled, Poised for Growth: Central and Eastern European Corporate Credit Outlook, S&P said that the region is an attractive hybrid of emerging markets with elements of developed economies, most notably Poland and the Czech Republic. There is also a high degree of conformity to international standards, S&P remarked.

The region is defined to include Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Lithuania, Poland, Romania, Slovakia and Slovenia.

Beata Sperling-Tyler, credit analyst at S&P, said: “We also expect a robust turnaround in capital expenditure in the CEE, although this is likely to remain concentrated by industry and by country.”

CEE corporate capex has struggled to recover in the wake of the financial crisis but that is poised to change this year, S&P said, with 25 percent growth in real terms. Ukraine’s situation represents the main risk to this recovery.

Sperling-Tyler continued: “Overall, the region is performing well in terms of economic growth, although key risks are idiosyncratic institutional and political risks; dependence on Eurozone growth; deflation, particularly as many of these countries have fixed exchange rates; and escalating tensions between Russia and the West over the situation with Ukraine.”

S&P estimates an infrastructure development need of $1 trillion through 2030 in the CEE, which will present an opportunity for private investment. “Of that figure, we expect that governments will provide the lion's share, leaving a $100 billion funding gap opportunity for the private sector,” Sperling-Tyler said.