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Solid credit trends for Asian firms, low refinancing risk

Hong Kong, November 14, 2011 — Moody’s Investors Service sees the continuation of a broadly stable credit environment in Asia but, at the same time, considers that the peak of the credit cycle has passed and some negative pressures are emerging.


Nevertheless, improved liquidity, manageable refinancing risk, and better covenant headroom for corporate issuers in the region, excluding Japan, indicate ongoing low rates of default in 2012.


Such factors are the primary conclusions contained in three new reports on [1] corporate credit trends in Asia Pacific (released Nov 8); [2] liquidity for Asia’s corporates (Nov 14); and [3] refinancing needs in Asia (ex-Japan and ex-Australia) (Nov 14).


A fourth report was released on Nov 4 on liquidity for high-yield issuers in Asia as illustrated by the monthly Asian Liquidity Stress Index.


“In the first report, we note broadly stable credit trends in the region through to the end of the third quarter with no expectation of material changes to this trend in the near future,” says Clara Lau, a Moody’s Group Credit Officer for Asia Pacific.


“However, the third quarter probably marked a turning point in credit quality with downgrades noticeably outpacing upgrades, although still at very low levels,” she adds. In further discussing her second report on liquidity, Lau says, “The proportions of rated issuers with weak liquidity profiles and those at risk of breaching covenants have fallen.”


“With the third report, we note that bond refinancing needs for rated Asian issuers appear manageable for the period through to the end of 2015,” says Kaven Tsang, a Moody’s analyst and assistant vice president.”Whilst the absolute level outstanding is growing, two thirds of the US$266 billion in bonds maturing from rated issuers through 2015 comes from domestic bonds, and investment-grade companies issued 87% of the total,” says Tsang.


“The lower volatility in domestic bond markets — when compared to cross-border ones — and the presence of well-recognized names, or the quasi-sovereign status of most issuers, makes the roll-over of this debt less problematic,” says Tsang.


In the Nov 4 report on Asia’s Liquidity Stress Index, Laura Acres, a Senior Credit Officer, noted that fewer than 10% of the rated high-yield portfolio has inadequate liquidity, and no defaults have occurred in the past 12 months. “Although these low numbers will rise slightly next year, they are unlikely to approach levels reached during the global financial crisis of late 2008 to early 2009 when more than a third of these issuers had inadequate liquidity and nearly 18% of the portfolio had defaulted in the previous 12 month,” says Acres.


The three reports released today are (1) Rating And Outlook Trends For Asia Pacific Non-Financial Corporates Q3 2011; (2) Asian Corporate Issuers Have Manageable Refinancing Needs Through 2015; and (3) Near-Term Liquidity Profiles of Rated Asian Corporates is Manageable, but Risks Are Increasing. The report released on Nov 4 is Asian Liquidity Stress Index Data Points to Likely Cycle Peak.


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