Record high credit downgrades for NZ companies

The agriculture sector has had the smallest increase in payment ratings downgrades. Photo / Amos Chapple

A record number of companies have had credit downgrades since January 2008 as they face rising risk of financial distress or missing payments, credit reporting agency Dun & Bradstreet says.

The downgrade of nearly 82,000 companies over 15 months was a sign that the economic crisis was hitting businesses, and the outlook for trade credit - considered vital to the economy - was deteriorating, said Dun & Bradstreet general manager John Scott.

The ability of businesses to trade with each other was being limited as a result.

The downgrades occurred across the country and over all industry sectors, but younger companies, the services sector and North Island businesses had the highest number of risk and payment downgrades, Mr Scott said.

The situation indicated that the economic downturn would be lengthy and difficult for many companies, with cash flow and liquidity likely to be hurt.

"However the recession alone is not to blame," he said.

"Downgrades on this scale are a clear sign that many businesses simply weren't paying close enough attention to risk management and cash flow and these businesses have been caught out by the change in conditions."

Around 38,000 companies were now rated a higher risk of financial distress in the coming year, and a further 44,000 were more likely to pay their trade accounts in a severely delinquent manner.

The agriculture sector had the smallest increase in payment ratings and the second lowest in risk ratings.

Companies had to understand their exposure to failure and late payments, and manage their customers and suppliers accordingly, Mr Scott said.

The downgrades were the result of analysis on the 500,000 New Zealand companies in Dun & Bradstreet's database.

- NZPA