In a report on Monday, Fitch said the
prospects for sustained economic growth would remain too uncertain for Central
and Eastern Europe (CEE) and Middle East and Africa (MEA) corporates to
consider significant acquisitive product and market diversification.
However, it said, factors such as the
uncertain operating outlook, the need for maintenance and organic capital
expenditure, shareholder expectations of cash dividends and a desire to
strengthen liquidity and to moderate leverage are limiting the appetite and
capacity of many Fitch-rated corporate issuers to be more active in M&A.
"The limited availability of
finance also continues to constrain any pick up in M&A activity," the
report added.
Reflecting the industry's relative
stability and more limited prospects in developed markets, Fitch added,
telecommunications continues to be one of the main sectors of M&A activity
across the EMEA region, and Fitch believes this will continue to be the case,
especially in Africa where further deals are anticipated.
Fitch foresees continued state
privatizations such as the Zambian government's sale of a 75 percent stake in
Zambia Telecom to Libya's Lap Green Investments. In Russia, steps to conclude a
consolidation of the Syvazinvest regional operating companies under the
Rostelecom umbrella are continuing. The combination of Svyazinvest assets is
aimed at establishing a nationally integrated Russian telecommunications
operator.
In addition to consolidation driven by
the need to improve vertical integration, industrial corporate M&A across
the Commonwealth of Independent States (CIS) region is to a meaningful degree
being facilitated by vendors who are looking to sell stakes in their companies
to service or repay debt.
Fitch expects that the Russian oil and
gas industry will experience acquisition activity, as Russian producers are
keen to acquire assets in CEE to improve their vertical integration.
For example, it said, AFK Sistema's
(rated 'BB-'/Stable) has moved to acquire 49 percent of Russneft following its
decision to take control of the Bashkir Oil and Energy Group in 2009. If
successful, Fitch added, such a move could improve AFK Sistema's vertical
integration by boosting upstream production to levels in line with its
downstream refining capacity.
