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— Moody’s Investors Service says that its Asian Liquidity Stress Index (LSI) showed a slight improvement in November with 9.0% of the rated speculative-grade portfolio demonstrating inadequate liquidity against 9.6% in October.
“The change in the index — which declines when corporate liquidity increases — was due to the withdrawal of four ratings, of which two were in the SGL-4 category, rather than any fundamental improvement in overall liquidity,” says Laura Acres, a Moody’s Vice President and Senior Credit Officer.
SGL-4 is the lowest speculative-grade liquidity score an individual company can receive.
“The peak of the credit cycle has passed, and the overall credit quality of the high-yield portfolio is on the wane as evidenced by the number of downgrades versus upgrades,” says Acres.
“For the Asian LSI, this situation is likely to result in stability and then a gradual deterioration, as companies become pressured to raise money to address upcoming debt maturities.”
“Issuers are looking to domestic and regional banking markets to refinance maturing facilities and raise funds for capital expenditure.”
The total amount of rated debt outstanding in November rose slightly to
USD49.2 billion, versus USD48.8 billion in October, fuelled by PT Perusahaan Listrik Negara’s USD1.0 billion drawing off its MTN program.
Liquidity in Asia is generally weaker than in other regions, partly because its debt capital markets aren’t as mature as those in other regions, and because they rely more on local bank markets for funding.
Relationship banking, which rolls over short-term and uncommitted lines of credit rather than providing committed funding, is far more common in Asia than elsewhere.
The liquidity of rated Chinese high-yield companies — a key focus of the financial markets — remained broadly stable at 10.6% at the end of November.
The number of Chinese property companies with weak liquidity shot up to 15.4% as of the end of November, from 11.5% in October, reflecting the addition of one new issuer to the SGL-4 category.
Historically, the percentage of speculative-grade Indonesian companies with inadequate liquidity has been higher than the overall Asian portfolio, but the report notes that for the past four months, it has remained stable and now stands at 7.7%, reflecting support from domestic and regional banks with committed term financing.
The monthly index looks at liquidity trends throughout the Asia-Pacific region (excluding Japan and Australia) for the speculative-grade companies Moody’s rates, and quantifies the proportion of companies with inadequate liquidity.