Corporate cash reserves in EMEA hit $1.53trln

Corporate cash reserves of non-financial companies in the Europe Middle East and Africa (EMEA) region hit a record high of more than $1.53 trillion in 2020 as businesses increased cash reserves through borrowing and other measures to support liquidity to weather the pandemic, Moody's Investors Service said in a report.

The spike in cash in 2020 was exceptional. Companies are likely to use cash to repay some debt when the pandemic recedes and there is confidence in the economic recovery, the global rating agency said.

That total cash holdings of EMEA non-financial companies rated by Moody's was about 20 per cent higher than in 2019, which was supportive of credit quality. The top 25 companies accounted for $564 billion, or 37 per cent of the total.

Although its cash balance declined, Saudi Arabian Oil Company (Saudi Aramco) remained the largest cash holder with $55.34 billion. Many other businesses, including energy companies such as Royal Dutch Shell, BP and Equinor ASA, had stable or increased cash holdings because of significant new borrowing.

"Average cash holdings increased in nearly every sector, including those most affected by the pandemic, such as transportation and retail, reflecting initiatives to bolster liquidity," said Richard Morawetz, VP-senior credit officer at Moody's.

"However, 2020 was an anomaly and we don't expect these conditions to persist much beyond the pandemic, as companies will likely repay some debt when there is confidence in the economic recovery," said Morawetz.

The rating agency said dividends and capital investments were reduced because of the pandemic, but will resume with a recovery. “Some of the sharpest cuts in dividends were in the automotive, lodging, gaming and transportation sectors. By contrast, a handful of sectors, including utilities and pharmaceuticals, paid dividends close to 2019 levels as they were less affected by the pandemic.”

With a revival in earnings, companies may face competing pressures from shareholders versus creditors on whether to prioritise increased dividends, debt repayment, or other uses of cash, it said.