Bangkok--20 Aug--Moody's
Moody's Investors Service says in a new report that the liquidity profile and refinancing risk of rated Asia-Pacific corporates remains weak, albeit gradually improving.
The recently published report details the results of Moody's most recent survey of its portfolio. The survey shows that the number of companies with strong liquidity scores has improved on a quarterly basis since the end of 4Q08, while the amount of debt due for refinancing has declined in the most recent quarter.
"Despite the improvement, liquidity positions among rated Asia Pacific corporates remain weak relative to their positions before the financial crisis," says Laura Acres, a Moody's senior analyst and the report's author, adding, "For example, approximately one third of issuers have insufficient liquidity, which is down from 43% at the end of 2008, but still higher than 29% in 3Q07."
"By comparison, liquidity profiles in aggregate remain much weaker than equivalent surveys indicate for rated European and US corporates. For example, as of mid-2009, only 16-17% of rated corporates have insufficient liquidity in the US, Europe, the Middle East, and Africa.
The higher Asian rates reflect the greater willingness of local corporates, and in particular of investment-grade companies, to rely on on the strength of their banking relationships to fund against uncommitted lines and domestic bond markets to provide funding," she says.
The report notes that refinancing risk has declined; at the end of 2Q09, US$128bn in debt will come due over the next 12 months, down from US$150bn at the end of 1Q09. Current debt falls to about US$75bn if working capital lines and revolving credit facilities automatically roll over.
"Although a number of investment-grade issuers have insufficient balance-sheet liquidity, their unfunded obligations are small relative to their size, and funding gaps largely reflect discretionary capital expenditure and dividend payments," says Acres.
According to the report, speculative-grade companies in a similar position have much less flexibility given more restricted market access.
In particular, a subgroup with tight covenant headroom may find debt being accelerated or require refinancing, which could contribute to numerous defaults in the next 12 months. Of the 10 issuers in this predicament, six are currently rated Caa1 or lower, two have bond ratings only one notch higher at B3, with negative outlooks, while the highest rating of the others is B1 negative, also with a negative outlook.
"Easing lending conditions have reduced immediate refinancing risk for investment-grade names, but weakened economies in the region and worldwide continue to put pressure on cash flows. That being the case we expect financial metrics to deteriorate further, particularly for poorly positioned, speculative-grade issuers, rated single-B or below," notes Acres.
The new report, entitled, "Asian Corporates' Liquidity Risk: Improving But Still High", is available at www.moodys.com.
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Hong Kong
Laura Acres
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
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Sydney
Brian Cahill
Managing Director
Corporate Finance Group
Moody's Investors Service Pty Ltd
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