Industry, the highest insolvency risk in 2017 (analysis)
Industry and constructions become more and more vulnerable, 54% and 15% of overall immobilized active stock of companies with insolvency applications registered this year coming from these sectors, according to a study made by CITR specialists in analysis and prognosis.
At the end of February, 120 companies, each with active stock of over 1 million euros, already had insolvency applications in court. The accumulated number of employees from these companies amount to 20,000 and their business figures amount to 1.5 billion euros. Most of them activate in industry, CITR analysis shows. This fields owned 54% of active immobilised shares of 120 companies, 48% of the total number of employees and a quarter of the cumulated business figure.
“The situation of this sector is strongly influenced by the alternate energy producers’ market, which continues to be in difficulty. Its vulnerability degree is closely linked to legislative regulations and shares of granting green certificates,” says Andreea Cionca-Anghelof, CITR associate coordinator.
The study mentions that an alarm signal is coming from the construction sector. Constructions mean 15% of active stock immobilised , 38% of the cumulated business figure and 15% of the overall number of employees, out of 120 companies with insolvency applications. the banking sector also faces difficulties, because of several factors: market agglomeration, types of similar operations offered and too low market shares to be profitable at a competitive level.
Powerful banks will continue consolidation, by means of mergers and acquisitions, while those that cannot implement this solutions and cannot continue activity can use the formula of share transfer of bankruptcy of the residual part, bank resolution or bank insolvency, CITR says. All these solutions are part of demands specific of the sector.
CITR analysts do not expect the failure of controlled solutions, due to the investors’ high interest for this sector. Lastly, the regulators’ intervention mandate is strong, and his resources are solid. However, the scenario of major failure of corporate ruling at bank level cannot be excluded, especially in the case of dramatic national economic evolutions in the shareholder’s country of origin.
As for state companies, CITR specialists estimate they would increase their vulnerability degree in 2017. Since 2012, over a hundred private managers have tried to make state companies more efficient and profitable, as established with IMF in 2011. Following the failure of this administration fund and on the background of accumulating debt, CITR points out the insolvency of these state companies was no longer an option, but a state of deeds. This tendency was seen last year with the insolvency of CET Govora, followed by the opening of insolvency procedure of RADET and ELCEN in the second half of 2016.
Compared to 2016, the number of insolvencies is dropping but companies with impact on economy continue to face financial difficulties.
“For instance, 500 companies have now debts of over 100% and cumulated losses of 200 million euros. Considering their overall active stock could reach 2 billion euros, business figure of a billion euros and the number of employees exceeding 9,300, their impact on local economy remains significant,” said Andreea Cionca-Anghelof, CITR associate coordinator.
Last year, 8,371 companies entered insolvency in Romania. Of them, 205 were impact companies, with immobilised stock of over a million euros, a cumulated business figure of 2.2 billion euros and about 30,000 employees. The highest share of immobilised shares of impact companies were in industry (46%) and services (24%). Industry and services hold 31% of the cumulated business figure of the 205 companies, being followed by agriculture with 21%, trade with 12% , constructions and real estate with 5%.
Accordi8ng to CITR specialists, the main common causes of insolvency were deficiencies of internal management, especially regarding re-structural measures precariously identified and implemented or too late. Moreover, the dependence of companies with small number of clients and not receiving payments for their dents, the dependence of companies on contracts with budget units - reduced budget allocations for new works and for already contracted works and the significant eduction of incomes, not correlated with the reduction of costs.