Bangkok--23 Mar--Moody's Investors
Moody's Investors Service says in a new report that the near-term refunding needs for both investment- and speculative-grade, non-financial corporates in Asia (excluding Japan andAustralasia) are manageable.
"We estimate that the refunding needs for Asian corporates over the next five years will come to US$234 billion, two-thirds of which are for domestic bonds. Annual maturities will be pretty evenly distributed atUS$42 billion to US$50 billion each year," writes Elizabeth Allen, a Moody's Vice President/Senior Credit Officer and author of the report.
These amounts are manageable, compared to the average annual new issuance of US$58 billion during the last five years and the more recent issuance of US$95 billion in 2009 and US$93 billion in 2010.
"In our view, barring any significant disruptions, the markets can easily absorb these maturities, 85% of which are for investment-grade corporates, whose refunding risk has improved because of strong balance sheet liquidity and steady financial performance," says Allen.
"Indeed, many Asian corporates are already refinancing their debt, before maturity, because of low interest rates and strong market demand, as investment-grade rated companies take advantage of current conditions to issue long-dated instruments," she adds.
In addition, market-specific refunding risk has diminished, because of the steady economic environment, stable industry outlooks, growing interest in Asian bonds by foreign investors, and the mostly uninterrupted availability of funds from the domestic banks and capital markets.
"The recent monetary tightening in some Asian countries will result in slightly higher funding costs, but we don't expect investment-grade companies to have problems refinancing their debt," Allen says, adding "Our confidence in their ability to do so stems partly from the fact that a large portion of the refunding need comes from government-related issuers."
"It is a different story for speculative-grade companies, whose refinancing risks are inherently higher and include mostly cross-border bonds, even though the amount that needs to be refunded in the near-term is manageable. We have already factored such concerns into their ratings," says Allen.
The challenges all issuers face include event risk not just in the region but also elsewhere, an increase in interest rates in domestic markets, and crowding-out in borrowing because of non-corporate issuers.
"Following the earthquake in Japan, we've seen some anecdotal evidence of an increase in the required yield for some high-yield Asian bond deals, but we still don't foresee any delays that would create immediate liquidity problems for our rated issuers," Allen concludes.
The report, "Benign Refunding Risk and Refinancing Needs for Asia Corporate Issuers, 2011-2015," can be accessed at www.moodys.com.