Coface Country Risk Conference 2007 Coface Country Risk Assessment Sylvia Greisman Chief Economist, Coface

Coface Country Risk Conference 2007

Coface Country Risk Assessment

Sylvia Greisman

Chief Economist, Coface


The country risk @rating assesses the average risk of payment default by companies in a given country

It combines the different aspects of country risk such as economic, financial and political, with the payment experience on companies calculated from Coface’s internal database

There are seven different rating grades: A1 to A4, B, C, D

The ratings are regularly updated on 154 countriesRatings, indicators of payment incidents and country risk assessment

are available on : www.cofacerating.com

The Country Risk @rating


Economic sectors @rating

The sector risk @rating assesses the average risk of payment default by companies in a given sector in short-term commercial transactions

To calculate sector @rating Coface combines three types of measurements: economic vulnerability of the sector, company financial solidity, payment experience on short term transactions, as reflected in Coface’s internal database

There are ten different rating grades: ranging from A+ for the lowest risks to D for the highest risks

The ratings are regularly updated for 14 economic sectors

Ratings, indicators of payment incidents and sectoral risk assessment are available on :

www.cofacerating.com

Barcelone - Mai 2007 4


2007 : A moderate slowdown

After the past years’ effervescence, the economic slowdown will be moderate and centred on the US.

Growth in emerging countries will slow in line with less buoyant global demand. However, it will remain driven by robust domestic demand.

GDP Growth (%)

0

1

2

3

4

United States Euro Zone Japan

2005 2006 2007

Emerging countries growth

0

2

4

6

2005 2006 2007

%


Coface basic diagnosis remains : no global credit crunch in 2007

-1

0

1

2

3

4

5

6

7

%

-50

0

50

100

150

200

World growth (current exchange rate) Payment incident index (base 100= world average 1995-2000)

1st oil shock, recession in the USA and Europe

recession in the USA then in Europe

2nd oil shock, recession in the USA and weak

growth in Europe

Internet bubble bursts 2000

11 septembre 2001


Industrialised countries : No credit crunch but certain risks not to be neglected ...

The drop in property prices in the US and in some European countries could exacerbate the economic slowdown

The dramatic rise in LBOs exposes companies and investment funds to financial difficulties in the case of an intensified economic slowdown.

US current account deficit maintains the risk of a significant USD depreciation


United States (A1)Moderate payment deterioration is expected

Economic growth and payment incident index

Payment incident index12 months moving rate

*Payment Incident index 100: World 1995-2000 basis

0

50

100

150

200

250

300

june

93

dec-93

june

94

dec-94

june

95

dec-95

june

96

dec-96

june

97

dec-97

june

98

dec-98

june

99

dec-99

june

00

dec-00

june

01

dec-01

june

02

dec-02

june

03

dec-03

june

04

dec-04

june

05

dec-05

june

06

déc-06

june

07

WORLD

United States

0%

1%

2%

3%

4%

5%

6%

7%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (f)

0

50

100

150

200

250

300

Economic growth ratePayment incident index


United States (A1 )Several sectors have to be watched closely

2007 sectoral risk scale

Information technology

Clothing / Textiles

Steel

Telecommunications

HIGHEST RISK

LOWEST RISK

Construction

Air transport

Electronic components

Pharmaceuticals / Mass retail Mechanical engineering / Paper / Chemicals

Automobile

: Downgraded sector

D

C+

C-

B-

A

C

A+

A-

B

B+


Japan (A1)Stabilisation of credit risk at a low level in 2007




0

50

100

150

200

250

300

june

93

dec-93

june

94

dec-94

june

95

dec-95

june

96

dec-96

june

97

dec-97

june

98

dec-98

june

99

dec-99

june

00

dec-00

june

01

dec-01

june

02

dec-02

june

03

dec-03

june

04

dec-04

june

05

dec-05

june

06

déc-06

june

07

WORLD

Japan

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (f)

-100

-50

0

50

100

150

200

250

300

Economic growth rate

Payment incident index


Japan Export sectors are still benefiting from dynamic regional demand and strong competitivity


☀ : Upgraded sector

: Downgraded sector

Information technology / Construction

Clothing

Pharmaceuticals

D

C+

C-

B-

A

C

A+

A-

B

B+

Mass retail ☀

Textiles

Papier / Chemicals Mechanical engineering / Automobile / Steel

Electronic components / Telecommunications

Air transport

HIGHEST RISK

LOWEST RISK


Western Europe Expected moderate increase in payment incidents



0%

1%

2%

3%

4%

5%

6%

7%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 (f)

0

50

100

150

200

250

300

Economis growth rate



Western Europe A still uneven economic growth

0

1

2

3

4

5E

uro

pe

an

Un

ion

15

Ge

rma

ny

Un

ite

dK

ing

do

m

Fra

nc

e

Ita

ly

Sp

ain

2006 2007p

GDP growth in Western Europe



Payment experience in Europe : Italy is back to « normal », beware of overheating risks in Spain

0

50

100

150

200

250

300 WORLD Germany

France Italy

Spain United Kingdom


Industrialised countries: … USA now on negative watch

January 2003

January 2004

January 2005

January 2006

January 2007

May 2007

Japan A2 A2 A1 A1 A1 A1United States A2 A1 A1 A1 A1 A1

Germany A2 A2 A2 A1 A1 A1Austria A1 A1 A1 A1 A1 A1Belgium A1 A1 A1 A1 A1 A1Denmark A1 A1 A1 A1 A1 A1Spain A1 A1 A1 A1 A1 A1France A1 A2 A1 A1 A1 A1Ireland A1 A1 A1 A1 A1 A1Netherlands A2 A2 A2 A1 A1 A1United Kingdom A1 A1 A1 A1 A1 A1Sweden A1 A1 A1 A1 A1 A1

Greece A2 A2 A2 A2 A2 A2Italy A2 A2 A2 A2 A2 A2Portugal A2 A2 A2 A2 A2 A2


D

C+

C-

B-

A

C

A+

A-

B

B+

Western Europe Construction and automobile sectors are particularly exposedMass retail is recovering


☀: Upgraded sector : Downgraded sector

Automobile / Information technology

Textiles

Steel

Telecommunications / Paper / Construction

Air transport

Pharmaceuticals / Chemicals / Mechanical engineeringMass retail ☀

Electronic components

Clothing

D

C+

C-

B-

A

C

A+

A-

B

B+

LOWEST RISK

HIGHEST RISK


Sylvia Greisman

Chief Economist, Coface

Coface Risk AssessmentEmerging Countries


Emerging countries : a healthier financial situation and still robust growth expected in 2007

Several years of robust growth

GDP growth (%)

and current account surpluses

Current account balance (%GDP)

Have lead to impressively shrinking external debt ratios

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006e 2007f

%

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006e 2007f

%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

e

2007

p

Deb

t/Goo

d an

d se

rvic

e E

xpor

ts (

%)


… but inequalities between regions

Record growth in Asia, still weak in Latin America

0

2

4

6

8

10

Asia

Africa CIS

Emer

ging

cou

ntrie

s

Centra

l Eur

ope

Mid

dle E

ast

Latin

Am

erica

% d

u P

IB

2006 2007

Surplus global current balance, except in Central Europe

-10%

-5%

0%

5%

10%

15%

CIS

Mid

dle E

ast

Asia

Emer

ging

cou

ntrie

s

Latin

Am

erica

Africa

Centra

l Eur

ope

% d

u P

IB

2006 2007

A sharp fall in debt in relation to currency revenues since 2000

0%

50%

100%

150%

200%

250%

Latin

Am

erica

Centra

l Eur

ope

CIS

Africa

Emer

ging

cou

ntrie

s

Mid

dle E

ast

Asia% d

es e

xpor

tatio

ns d

e B

& S

2000 2007


Central Europe - Turkey : a sustained growth…

Economic growth (%)

0

2

4

6

8

10

12H

unga

ry

Slo

ven

ia

Tur

key

Cze

chR

epub

lic

Ukr

ain

e

Rom

ani

a

Bul

gar

ia

Pol

and

Lith

uan

ia

Latv

ia

Est

onia

2006 2007f


Central Europe, Turkey …favourable to construction, automotive and steel industries


But weaknesses remain

High budget and current account deficits…

…weigh on foreign indebtedness, notably the private sector’s

-12

-10

-8

-6

-4

-2

0

Poland CzechRepublic

Hungary Slovakia Turkey Romania

Budget balance/GDP (%) Current account balance/GDP (%)External debt (% of exports)

0%

50%

100%

150%

2000

2001

2002

2003

2004

2005

2006

e20

07f

Central Europe and Turkey Emerging countries


Some currencies are particularly exposed to depreciation risk ...

Philippines Turkey

Thailand South Africa Hungary

India Poland Slovak Republic Latvia

Mexico Indonesia Bulgaria Lithuania

Argentina Israel Ukraine Estonia

Brazil Jordan Croatia

Venezuela Romania

Chile Lebanon

Russia

Low probability

(35%)

Average probability

(50%)

Very high probability

(60%)

Very low probability

(20%)


Scale of Risk

Turkey B Hungary A3

Geopolitical and governance vulnerabilities

Banking sector's fragilities

Foreign currency liquidity crisis

External overindebtedness

Sovereign financial vulnerability

Growth vulnerability

Companies' payment behaviour

Turkey Hungary Manageable High RiskSignif icantLow Risk

Financial vulnerabilities in Hungary (A3) and Turkey (B)

0

50

100

150

200

250

300WORLD

Turkey

Hungary




Central Europe : Changes in ratings

January 2003

January 2004

January 2005

January 2006

January 2007

May 2007

Slovenia A2 A2 A2 A2 A1 A1Czech Republic A3 A2 A2 A2 A2 A2Estonia A3 A2 A2 A2 A2 A2Hungary A2 A2 A2 A2 A3 A3Poland A4 A4 A3 A3 A3 A3Slovakia A4 A3 A3 A3 A3 A3Latvia A4 A3 A3 A3 A3 A3Lithania A4 A3 A3 A3 A3 A3Romania B B B A4 A4 A4Bulgaria B B B B A4 A4Turkey C B B B B B


CIS : Buoyant economic growth but weak business environment

Rule of law (World Bank classification 2005)

Sin

gap

ore

Ho

ng

Ko

ng

Tai

wan

Slo

ven

iaIs

rael

So

uth

Ko

rea

Cze

ch R

epu

blic

Hu

ng

ary

Po

lan

dS

aud

i Ara

bia

So

uth

Afr

ica

Th

aila

nd

Ind

iaT

urk

eyE

gyp

tS

ri L

anka

Cro

atia

Bu

lgar

iaR

om

ania

Bra

zil

Vie

tnam

Arm

enia

Ch

ina

Mex

ico

Ph

illip

ines

Arg

enti

na

Mo

ldo

vaU

krai

ne

Alg

eria

Lyb

iaB

osn

iaIr

anK

azak

hst

anS

erb

iaP

akis

tan

Geo

rgia

Aze

rbaI

jan

Ru

ssia

Alb

ania

Ind

on

esia

Ben

gla

des

hB

elar

us

Kir

gh

iszt

anY

emen

Ven

ezu

ela

Uzb

ekis

tan

Nig

eria

Tu

rkm

enis

tan

Co

ng

oZ

imb

abw

eIv

ory

Co

ast

Su

dan

-2,00

-1,50

-1,00

-0,50

0,00

0,50

1,00

1,50

2,00


Russia (B) : …and booming corporate debt

0

20

40

60

80

100

120

140

160

180

2001 2002 2003 2004 2005 2006

GovernmentCompaniesBanks

External debt of Russian entities(Bn $)


CIS : Changes in ratings


Emerging Asia : continuing dynamic growth supports companies’ financial situation



0

50

100

150

200

250

300

dec-93

june

94

dec-94

june

95

dec-95

june

96

dec-96

june

97

dec-97

june

98

dec-98

june

99

dec-99

june

00

dec-00

june

01

dec-01

june

02

dec-02

june

03

dec-03

june

04

dec-04

june

05

dec-05

june

06

déc-06

june

07

WORLD

Emerging Asia

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(f)

0

50

100

150

200

250

300

Economic growth

Payment incident index*



Emerging Asia : highlights

Robust current account surpluses

Have led to high forex reserves creating massive domestic liquidity


0%

1%

2%

3%

4%

5%

6%

2000 2001 2002 2003 2004 2005 2006e 2007f

Asia Emerging countries

Foreign exchange reserves (2007 f) (in months of imports)

02468

1012141618

China

Taiwan

India

Korea

Mala

ysia

Thaïla

nd

Phillip

ines

Indo

nésia

Pakist

an

Vietna

m

Hong K

ong


But some sectors face fierce competition and in China, watch for overcapacities

Construction

D

A

C

A+

A-

B

B+

Mass retail / Pharmaceuticals

Highest risk

Clothing

Automobile

Chemicals / PaperElectronic components / Mechanical engineering

Steel

Lowest risk

Telecommunications Information technology

Textiles

: Downgraded sector☀: Upgraded sector


Competition on the domestic market and problematic corporate governance weigh on risks in China

First Results of 2006 Coface China Survey

52%

34%

5%9%

0%

10%

20%

30%

40%

50%

60%

Fiercecompetition

Lack of financialressources

Impact of risingraw material

prices

Others

Mains Reasons for Financial Difficulties

62%

37%

20%

17%

5%

68%

39%

27%

21%

4%

60%

40%

19%

18%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Financialdifficulties

ManagementChaos

CommercialDisputes

Fraud andLack ofmorality

Others

2004 2005 2006

Major reasons for non-payment

2004

2005

2006

0%

5%

10%

15%

20%

25%

30%

Overdue 6 months to 12 months

% of companies with overdue from 0,5% to 2% of sales






Sovereign f inancial vulnerability

Grow th vulnerability


China India manageable significant high risk low risk

China A3- India A3- Risks remain at a manageable level


Asia : Changes in ratings

January 2003

January 2004

January 2005

January 2006

January 2007

May 2007

Hong Kong A2 A2 A1 A1 A1 A1Singapore A2 A1 A1 A1 A1 A1Taiwan A2 A1 A1 A1 A1 A1Korea A2 A2 A2 A2 A2 A2Malaisia A2 A2 A2 A2 A2 A2China A3 A3 A3 A3 A3 A3India A4 A4 A3 A3 A3 A3Thailand A3 A3 A2 A2 A2 A3Indonesia C C B B B BPhilippines A4 A4 A4 B B BVietnam B B B B B BPakistan D D C C C C


Latin America : Companies benefit from a still robust domestic demand

0%

1%

2%

3%

4%

5%

6%

7%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(f)

0

50

100

150

200

250

300

Economic growth



Economic growth and payment incident

index


Latin America : Highlights

Several years of current account surpluses have led to a significant reduction in debt ratios

Current account (% GDP)

-4%

-3%

-2%

-1%

0%

1%

2%

2000 2001 2002 2003 2004 2005 2006 2007

Elections have underlined the rise in claims for wealth

redistribution

Ecuador

Venezuela

Argentina

Colombie

Peru

Mexico

Brazil

Chili


Low risk manageable signif icant high riskmaîtri

External debt (% of exports)

0%

50%

100%

150%

200%

250%

2000 2001 2002 2003 2004 2005 2006e 2007f

Latin America Emerging countries


Brazil A4 – Argentina C : Diverging risk level

Geopolitical and governancevulnerabilities


Foreign currency liquiditycrisis


Sovereign financialvulnerability

Growth vulnerability

Companies' paymentbehaviour

Argentina Brazillow risk manageable significant high risk


Latin America : Changes in ratings

January 2003

January 2004

January 2005

January 2006

January 2007

May 2007

Chile A3 A3 A2 A2 A2 A2Mexico A4 A4 A4 A4 A3 A3Brazil C B B B A4 A4Colombia B B B B A4 A4Peru B B B B B BArgentina D D D C C CEcuador D D C C C CVenezuela D D C C C CBolivie D D D D D D


Northen Africa – Middle East : Companies benefit from a booming activity



0%

1%

2%

3%

4%

5%

6%

7%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(f)

0

50

100

150

200

250

300

Economic growth



Northen Africa – Middle East : Highlights

Lebanon

Iran

Egypt

Saudi Arabia

Bahreïn

Israel

UAE

Kuw eit

Qatar

Low risk manageable signif icant high riskmaîtri


0%

5%

10%

15%

20%

2000 2001 2002 2003 2004 2005 2006e 2007f

Northern Africa - Middle East Emerging countries

Current account (%GDP)

External debt / Exports (%)

0%20%40%60%80%

100%120%140%

Northern Africa - Middle East Emerging countries

Large current account surpluses But geopolitical tensions in the ME countries have negatively impacted the risks

Have led to significant debt reduction


Israel (A4) – Saudi Arabia (A4) : Good companies’ payments despite geopolitical tensions








Israel

Saudi Arabialow risk manageable signif icant high risk

0

50

100

150

200

250

300

june

98

dec-9

8

june

99

dec-9

9

june

00

dec-0

0

june

01

dec-0

1

june

02

dec-0

2

june

03

dec-0

3

june

04

dec-0

4

june

05

dec-0

5

june

06

déc-0

6

WORLD Saudi Arabia Israël



North Africa, Near and Middle East : Changes in ratings


0%

1%

2%

3%

4%

5%

6%

7%

8%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007(f)

0

50

100

150

200

250

300

Economic growth


Sub Saharan Africa : Oil and commodity output bolsters growth, but companies’ payment experience is not improving

Economic growth and payment incident

index


Sub-Saharan Africa : Highlights

but current account deficits are still high

Commodity exports and debt cancellation have improved debt profile

and important institutional fragilities remain

Côte d'Ivoire

Nigeria

Angola

Gabon

Cameroon

Kenya

Senegal

Tanzania

South Africa

Mauritius

Geopolitical and Governance vulnerabilities

Low risk manageable significant hight risk


-6%-4%-2%0%2%4%6%

2000 2001 2002 2003 2004 2005 2006 2007

Africa Emerging countries

External debt / Exports (%)

0%50%

100%150%200%

250%300%

2000 2001 2002 2003 2004 2005 2006 2007

Africa Emerging countries


South Africa (A3) – Nigeria(D)

0

50

100

150

200

250

300

WORLD South Africa








South Africa

Nigerialow risk manageable signif icant high risk


Sub-Saharan Africa : Changes in ratings


North America

J apan

European Union (15)

Central Europe

Near and Middle East

Latin America

CI S

Subsaharan Africa

HIGHEST RISK

LOWEST RISK

Emerging Asia

World

Emerging Countries

50

200

100

250

300

150

350

The regional risk index is the average of the country risk @rating w eighted according to the share of each country in the regional GDP.

The base of the index is the w orld risk in 2000.

Industrialized

Countries

Range of regional risks

Range of regional risks


No credit crunch but certain risks not to be neglected ...

Many of them linked to an abundance of liquidity …

Real estate bubbles

Stock market bubbles

Company over-indebtedness

…or to other imbalances

Current account deficits and the attendant currency depreciation risk

Industrial overcapacities in China

Geopolitical tensions and volatility in oil prices

Documents

Coface Country Risk Conference 2007 Coface Country Risk Assessment Sylvia Greisman Chief Economist, Coface