TEXT-Fitch:Corp response to Eurozone crisis not all slash-and-burn

We expect Fitch-rated peripheral eurozone corporates to reduce total 2012 capital expenditure by 2.4% year-on-year, against a 7.3% increase for the western European-rated portfolio as a whole. Measuring our expectations for 2012 against the five-year average for 2007-2011, the gap is a 14.6% fall for the periphery compared with a 4.1% increase in the region as a whole.

However, this aggregate number masks significant variation between issuers. Measured using the same five-year average, our 2012 capex projection for a number of companies such as Acea, Enagas, Eni, Enel and Telecom Italia is broadly unchanged. We anticipate double-digit capex declines from Endesa, Finmeccanica, Iberdrola and Portugal Telecom, and double-digit increases at Red Electrica Corporacion, Gas Natural, and Terna . We also expect increased capex in 2012 for Telefonica, primarily to accommodate spectrum costs.

Dividends show a more consistent pattern of reduction. Again measured against a five-year average, significant double-digit declines are projected by Fitch for Enel, Telecom Italia and Iberdrola, with cuts of a half or more in the dividend for OTE, Portugal Telecom and Repsol. We expect 2012 dividends to be skipped entirely at Finmeccanica and Telefonica as well as Edison, pending any change in policy following the acquisition by EDF.

A minority of companies are nonetheless planning dividends above the five-year average - Enagas, Gas Natural, Red Electrica and EDP, though in most cases, the payments are flat on last year, and may include scrip (non-cash) payments.

A recent analysis completed alongside our peripheral eurozone corporate war-game exercise also identified divestments as another popular measure for entities rated 'BBB' and below, with 15 out of 27 peripheral issuers slimming down their asset bases in response to the crisis.

For an analysis of how Fitch treats these evasive manoeuvres, please see Scenario: Eurozone Corporates War Game Exercise, available from www.fitchratings.com.