Coface: Construction companies are having trouble raising cash

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Companies in the construction sector are faced with cash flow problems and the number of players going insolvent is rising fast, Ziarul Financiar daily reports on September 25.
“We have clear signs that the construction sector is suffering from the impact of the foreign financial crisis. As insurers of commercial risks, we are seeing a significant increase in the number of policies activated,” says Cristian Ionescu, general manager of Coface Romania.
 
The French Coface group is one of the biggest players in the field of commercial risk insurance.
Ionescu notes that the companies in the construction sector are experiencing a severe shortage of cash, and the money troubles of one player quickly hurt its partners.
“Very many companies are being sued for not having seen their contracts through, after they failed to find funds to continue work.”
 
The constructions sector, however, ranks third among those with the highest number of companies to go bankrupt since the beginning of the year, after retail trade and distribution.
The number of companies filing for bankruptcy in the first half doubled compared with the corresponding period of 2007, to almost 3,700 cases, and the number of bankruptcies is estimated to continue to increase.
There were approximately 1,900 insolvency filings in the same time last year.
 
“We expect the number of bankruptcies to double at the end of this year compared with 2007 and reach approximately 7,000 cases,” Ionescu said.
Coface maintains Romania’s rating at “A 4 minus” and the representatives of the company warn that the current account deficit is very high, whereas the foreign indebtedness of the private companies continues to increase, so that the RON might see a substantial depreciation. The rating reflects the capability of Romanian companies to comply with their commercial  obligations.
 
“The current account levels are very high in the emerging countries in Europe. To us, 6% is a lot, but if we add another 10%, the level is too high already. A country cannot survive for too long with such a high deficit,” Coface’s chief economist, Yves Zlotowski stated. Coface representatives forecast the current deficit this year to reach 14% of GDP and go down to 13% in the next year, which is still high, though.
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