Bangkok--27 Apr--Moody's
Moody's Investors Service says in a new report that the default rate for Asia Pacific (ex-Japan) rated non-financial corporates will continue to decline in 2011.
"Specifically, our Credit Transition Model (CTM) indicates that the speculative-grade corporate default rate will fall to 1.1% by the end of 2011, from 3.4% in 2010," says Clara Lau, Moody's Group Credit Officer and author of the report. The trend is in line with our global high-yield default estimate of 1.5% for the year.
"This translates into the possibility of only one potential default for the year," says Lau.
Lau spoke on the release of "2011 default rates for non-financial corporate in Asia Pacific ex-Japan to drop further," Moody's annual update of its high-yield default estimates for corporates in Asia Pacific
(ex- Japan).
Moody's baseline scenario for the CTM is premised on a central scenario for a slowing but sustained global and regional economic recovery.
"Our base case scenario also reflects our expectation that the credit markets -- and thus the availability of liquidity -- will remain fairly stable, in anticipation of governments' cautious management of the withdrawal of quantitative easing measures," adds Lau.
Although a number of governments in the region are stepping up their monetary tightening measures due to rising inflationary pressure, Moody's expects such tightening will be handled progressively, without any dramatic curtailment of liquidity.
"If this proves otherwise, the default rate may rise, with the lower-rated speculative-grade Chinese property developers being the most exposed," comments Lau.
In addition, although supply chain disruptions due to the disaster in Japan will have a negative impact on regional industries such as insurance, utility, auto/auto parts, and electronics manufacturing, Moody's does not expect it to result in much upward pressure on the default rate, at least over the near term, given that the exposure of the rated APxJ corporates to Japan and the affected industries is relatively low, and the disaster has thus far caused no major disruptions to the availability of credit or liquidity for the Asian corporates.
The report, "2011 default rates for non-financial corporate in Asia Pacific ex-Japan to drop further," can be accessed at www.moodys.com.