Coface: Bankruptcies will double in Romania in 2008

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The number of bankruptcies in Romania at end-2008 will be double the 2007 figures because of worsening payment behaviour of companies amidst an ongoing liquidity crunch, Coface Romania Director General Cristian Ionescu said on September 24.
 
“We are expecting the number of bankruptcies to increase and double in the last part of 2008 from 2007, because of a worsening payment behaviour of companies amidst an ongoing liquidity crunch, particularly in the construction industry. This will lead to an increase in the opening of  insolvency procedures, although in many cases there is no talk of real bankruptcies,” said Ionescu.
 
In the first half of 2008, 7,793 bankruptcies were recorded, most of them in retail trade (1,770, up 23.62%), wholesale trade and distribution (1,501, up 20.03%). Construction industry ywas third, with 822 bankruptcies in H1, 2008, up 10.97% from 2007, followed by the wood processing industry, with 412 bankruptcies, a 5.5% rise, and transportation, 441 bankruptcies, up 5.49%.
According to data with Coface, the riskiest 10 industries in Romania are, besides the ones mentioned above, the food and drinks industry, the hospitality industry, services to companies, the textiles industry and agriculture.
 
As far as trade is concerned (retail wholesale and distribution), making up 43.65% of the total number of insolvency cases, the risks were generated by expansions of a supermarket or hypermarket type, which brought about a rise in the number of small traders going bankrupt.
At the same time, a rise in the risks of retail in electronics and electric home appliances, where the market is concentrated in the hands of the largest three players, has become visible. Coface points to the bankruptcy of Primex-Teknosa on a market far from maturity.
 
 According to Coface, there are also threats against the business of shopping malls, whereapproximately 100 new shopping centres have been announced to open, some in close vicinity to the malls. In the trade sector, there are companies influenced by the risks from other economic sectors, and they include traders of construction materials.
Coface is warning that for the time being construction, the riskiest business sector, is facing a liquidity crunch and a chain reaction is likely to ensue when a market incident occurs there.
 
“The overheating of the construction sector has immediate effects on the worsening of the payment behaviour of the companies operating in this sector, and the main problems are labour shortages, rising wages and prices for materials, which sometimes are reflected on the works prices for firm contracts. Likewise, an exponential increase in business leaves many companies in a quandary, impossible to keep up with the works,” said Ionescu.
 
“Bankruptcies are on the increase among property companies as well that have become insolvent as a result of plummeting trade in housing and surging property prices,” said the Coface Romanian official.
The least risky fields, where the smallest number of insolvencies were recorded in H1, 2008 are electricity and heat generation and supply, water and gas, the metallurgy, financial brokerage, communications and IT.
 
The areas with the largest number of insolvencies are Bucharest City (971 instances), Timis County (741), Vrancea County (386), and Prahova County (369), while the areas with the smallest numbers of insolvencies were Teleorman County (16), Alba County (24) and Giurgiu County (39).
There are currently 617,997 companies operating in Romania, 311,573 of which worked on a profit in 2007 and 306 on a loss.
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