Milan really seems a ghost city in these day… and now more than ever as the Government decided to close all the Lombardy Region and 14 other provinces in Northern Italy with a Decree issued in the night between Saturday March 7th and Sunday March 8th and enforced since yesterday afternoon aiming at containing coronavirus epidemic (see here a previous article by BeBeez).
Actually me and all people I know are well but hospitals are full with people who need help for breathing and structures even here in the North cannot comply with all demands. Generally these people are elderly ones or people who were weak due to other illness but this does not mean that younger people might need help too. Kids are attending lessons via web. Smart working is compulsory when the business allows it. But the real problem is for manufactures and import export. And this is where the Government is asked to intervene.
While we are all waiting to understand exactly which are the limitations to travel for work, as well as health reasons, within the new “orange zone” created in Northern Italy to contain the coronavirus infection, all operators are holding breath for the opening of Piazza Affari this morning. To date, no communication has been released regarding a possible suspension of negotiations or at least an introduction of the ban on short selling.
Meanwhile, the situation for companies is becoming increasingly heavy. In recent days BeBeez has reported a study by ARisk, an innovative startup co-founded by Giuseppe Vegas, former President of Consob) and spin-off of the Turin Politecnico University the has developed an innovative calculation algorithm for the analysis and monitoring of current and predicting risks evolution through artificial intelligence and machine learning techniques. ARisk’s study (see here a previous article by BeBeez) calculates that companies with one to 5 million euros in revenues in 15 days of production shutdown have already burned an average of 103k euros in cash, while those with revenues between 5 and 10 million euros in the same period they burned cash for 300k euros and those between 10 and 15 million went to burn 450k euros. Not only. For companies in the smaller range, there is no longer a protective buffer: the case has burnt all over and would need all those 103k euros to be able to meet contingent commitments, while the deadline for larger companies is 44 days (for 1.3 millions of total cash burned) and for companies in the mid-range the crucial date is the threshold of 50 days (and 1.1 millions euros burned).
Also in recent days Cerved Credit Ratings has in turn released a study on 25 thousand Italian companies for which it monitors the rating, which calculates that, if the Coronavirus emergency continues until the middle of the year, the probability of default of Italian companies would rise from 4.9% to 6.8%, with a minimum of 2.6% for the pharmaceutical sector (improving from 3.8%) and a peak at 10.6% for the construction sector (from 8, 1%), but if the pandemic spreads and the emergency persists until year, then the probability of default would rise to 10.4%, with a minimum of 7.5% and a peak of 15.4% for the same sectors (see here a previous article by BeBeez) . Impact estimates on margins bring the average ebitda margin of the companies in the sample to 4.2% in the soft scenario from the current 6.1% and to 3.1% in the hard scenario. And also on the front of the relationship between ebit and interest on debt, that is between operating profit and financial charges, the prospects are rather grim and companies will certainly have more difficulties in guaranteeing regular debt service, with the ratio that would pass on average from 4 , 12% to 2.51% in the case of less severe scenario and 1.64% in the most serious scenario.
What currently emerges is that banks are having difficulty accompanying SMEs in this emergency and that the use of fintech platforms is increasing. At first, invoice financing is increasing, given that those who find themselves with invoices in payment start to doubt that their customers can pay on time and therefore prefer to sell it. But in perspective there are structured initiatives that are arising in the minibond market. For example Frigiolini&Partners Merchant is working at the launch of a so-called Restart Italy Pluribond, a basket of minibond issued by Northern Italy SMEs who are based in the new orange zone area that might be subscribed by a group of Confidi or other institutional investors and give medium-long term finance to those companies, helping them to keep on producing.