Bangkok--22 Jul--Moody's
Moody's Investors Service says in a new report that the pace of negative rating actions among Moody's-rated corporates in Asia Pacific in 2Q09 slowed markedly from the previous quarter but that stabilization remains some way off. There were 41 negative rating actions in the second quarter compared to 81 in the first quarter.
The report, which covers corporate credit trends in Asia Pacific including Japan, notes that this rating trend was consistent for both Asia Pacific ex Japan and Japan, as both saw their number of negative actions halve compared to 1Q09.
"This trend primarily reflects the reducing need to adjust ratings following the rapid fall-off in global activity in the fourth quarter of 2008 and the first quarter of 2009," says Clara Lau, a Moody's Group Credit Officer and author of the report, adding, "It also reflects -- for some -- a pick-up in capital market activity which has helped ease liquidity issues and served to recapitalize some companies."
"However, while this is the first time that such a slowing in the trend has been observed since the end of 2007, the total number of negative actions remains high," adds Lau.
Overall, negative rating outlooks for Moody's Asia Pacific-rated corporate portfolio remains at a high level with the proportion of ratings with negative implications at about 42%, says the report.
"The high level of negative rating outlooks for the Asia Pacific-rated corporate portfolio reflects an operating environment that continues to be challenging. Corporates' ability to sustain or improve their financial profiles, which have been materially impaired, remains uncertain in the face of still weak demand and economic fundamentals," says Lau.
In addition, the increase in the number of "fallen angels" -- i.e. credits which have dropped from investment-grade into speculative-grade ratings -- in Asia Pacific ex Japan may continue in coming quarters, as the number of borderline Baa3 issuers has risen.
Utilities and telecommunication sectors in the region remain two of the few bright spots with broadly stable outlooks.
According to the report, the number of rated defaults continued to rise in the quarter in Asia Pacific ex Japan numbering 7 as of the end of Q209, compared to 4 as of Q109. The resulting total default rate rose to 3.3% as of the end of 2Q09 from 0.9% for full-year 2008. By contrast, Japan recorded no rated defaults as of 2Q09. Moody's estimates that the number of rated high-yield defaults will peak during 4Q09.
Finally, corporates with large refinancing/funding needs remain exposed to potential financial market volatility despite a strong pick-up in domestic capital markets, given fragile confidence in the economic recovery, says the report.
Entitled, "2Q09 Asia Pacific Corporate Credit Trends: Negative Rating Trend Easing but Stabilisation Some Way Off," the report can be found at www.moodys.com.