Bangkok--16 May--Moody's Investors Service
Moody's Investors Service says the negative trend that affected ratings for corporate issuers in Asia Pacific (ex-Japan) last year and carried into 1Q2007 will likely persist for the rest of 2007.
"The negative credit trend is mainly the result of event risk, primarily from mergers and acquisitions," says Clara Lau, Moody's Chief Credit Officer for corporates in the region, in a new report.
"In addition, Moody's expects more rating changes in the next 12 months and, in some cases, large migrations are conceivable, given the uncertain impact of M&As on business and financial profiles," adds Lau. In 1Q2007, the percentage of credits with stable outlooks fell to 72% from 76%.
The just-released report entitled "Event Risk Continues to Drive Overall Negative Credit Trend" analyzes trends in Moody's rated universe of Asia Pacific corporate issuers during 1Q2007.
"Moreover, despite a narrowing of the gap between the number of ratings on review for upgrade and for downgrade to 6 in 1Q2007 from 9 in 4Q 2006, overall statistics suggest that the negative credit trend is not weakening," reiterates Lau.
"Our conclusion is based on the fact that 16% of the ratings in the Asia Pacific corporate portfolio are under review for downgrade or show negative rating outlooks, compared to only 11% on review for upgrade or with positive outlooks," adds Lau. More specifically, 6 companies are on the cusp of moving either from non-investment grade to investment grade status or vice versa.
Looking back at 1Q2007, the report says it was dominated by negative rating actions as Moody's placed 9 ratings on review for downgrade and only 3 on review for upgrade. A negative rating action is defined as when a rating is downgraded, or put on review for downgrade, or assigned a negative outlook.
Furthermore, in the first quarter, unlike 4Q2006 when Australian companies figured prominently, Asian corporates were behind 62% of the negative rating actions and most of its positive moves.
Leisure and entertainment, utilities and infrastructure accounted for most of the negative actions in 1Q2007, while telecoms stood out as a robust sector due to strengthened operational performances. An improving credit trend was also evident for the technology and semiconductor sector.
However, for the foreseeable future, compared with the rest of Asia Pacific, the current credit trend is somewhat more negative in Australia, again due to active M&As in that market's corporate sector, the report says.
A total 19% of Australian ratings now have negative outlooks or are on review for downgrade, against only 4% with positive outlooks or reviews for upgrade compared to -- as indicated -- respective figures of 16% and 11% for Asia Pacific as a whole.
Copies of the report titled "Asia Pacific (ex Japan) Corporate Credit First Quarter 2007 Update: Event Risk Continues to Drive Overall Negative Credit Trend" can be found at www.moodys.com
Hong Kong
Clara Lau
Chief Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
Sydney
Brian Cahill
Managing Director
Corporate Finance Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100