Bangkok--29 Jun--Moody's Investors
Moody's Investors Service says the negative credit trend that prevailed among Asia Pacific's (ex-Japan) non-financial corporates over the previous year showed signs of moderating during 2Q2007, supported by an upturn in the Asian corporate portfolio, a result in turn of improved fundamentals.
"Much of the improvement was driven by telecommunications companies and corporates in Korea," says Clara Lau, Moody's Chief Credit Officer and author of the rating agency's latest quarterly review for Asia Pacific.
"Furthermore, looking ahead into 3Q2007, Moody's expects the overall trend in Asia Pacific to remain neutral to mildly negative, supported by the likely continuation of the more positive trend across Asia," says Lau.
"The apparent stabilization of the region's negative credit trend was evidenced by the rise in the percentage of credits with a stable outlook to 80% in 2Q2007 from 76% in 1Q2007," says Lau, adding, "Meanwhile, the percentage on review for downgrade or with a negative outlook declined
slightly to 14% from 16%. "
"The above was a result of the quarter-over-quarter percentage of Asian ratings with a negative bias declined to 9% from 15%, offsetting the rising negative credit trend experienced by companies in Australia," says Lau. In Australia, credits on review for downgrade or with a negative outlook rose to 25% in 2Q2007 from 19% in 1Q 2007 due to M&A activity.
"Going forward, the key risk for Asian issuers will continue to stem from ongoing expansion, as acquisitive growth spurs ambitious capital expenditures," says Lau, adding, "Both strong domestic growth,
particularly in China and India, and aggressive strategic efforts to expand scale to fortify market positions before these countries open up to further foreign investment are driving ambitious investments."
The Moody's report says this situation poses increasing execution risks which affect credit profiles. Several recent rating actions were partly the result of the issuers' inability to achieve projected results, based on aggressive growth plans, or due to debt-funded expansion beyond Moody's expectations.
"So far, ample liquidity has allowed for continued active debt and equity issuances at low interest costs or high P/Es," says Lau. "But, there is a risk that the ample liquidity currently supporting the positive outlook for Asia may fall away."
"Such a turn may come without warning, leading to unexpected rating pressure on companies with weak liquidity profiles, particularly high-yield credits which are heavily reliant on short-term funding or
are facing significant debt maturities," says Lau.
Moody's report, " Asia Pacific (ex Japan) Corporate Credit Second Quarter 2007 Update: Negative Trends Ease across Asia but Strengthen in Australia" can be found at www.moodys.com
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Hong Kong
Clara Lau
Senior Vice President
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
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