Moody's: Pharma firms' ratings could be under pressure

14th Mar 2012 14:36

Ratings agency Moody's has announced that certain European pharmaceuticals companies' ratings could be pressured by resumed share buy-backs. Four of the largest pharma groups, namely AstraZeneca, GlaxoSmithSkline (GSK), Novartis and Sanofi, could all be at risk after they re-started share buy-back schemes following a period of consolidation and a series of mergers and acquisitions. Moody's said: "AstraZeneca intends to make $4.5bn worth of share buybacks this year, an amount that exceeds our current expectation for its post-dividend free cash flow generation in 2012 - approximately 2.5bn."Negative pressure on AstraZeneca's rating or outlook could build if sizeable buybacks combined with earnings erosion lead its financial profile to weaken.Meanwhile, the agency said that share buy-backs combined with other large cash outflows could cause GSK's financial profile to weaken, resulting in rating pressure. "However, GSK has provided a monetary range for its repurchases, enabling it to retain a degree of flexibility if conditions change." The agency is of the opinion that the firms' European counterparts are likely to make fewer share buy-backs. "In general, most rated industry players are keen to keep a Prime-1 short-term rating so that they can access the debt markets easily and cover any unexpected payments. Because a Prime-1 rating hinges on an issuer's ability to maintain a long-term rating of at least A2 or higher, we would not expect companies to undertake substantial share repurchases that could potentially jeopardise this."NR