Bangkok--26 Aug--Moody's Investors
Moody's Investors Service says that the rising default rate for rated non-finance corporates in Asia-Pacific (ex-Japan) is likely to persist in the short term and then peak in the last three months of 2009.
"The rising default rate is expected to continue, but now looks near its top with the Asian speculative grade trailing 12-month non-finance corporate default rate estimated to peak at 18-20% in 4Q2009," says Clara Lau, a Moody's Group Credit Officer/Corporate Ratings Asia Pacific.
"Subsequently, the rate is expected to fall sharply to around 10% in 2Q2010, while it was -- as of end-July -- 16%, well above the 2.7% for all of 2008," says Lau.
"At the same time, this estimated high-yield corporate default peak will be one of the highest, if not the highest for Asia-Pacific's rated non-finance corporate portfolio since we began tracking this in Asia in the early 1990s" says Lau.
"The estimate reflects the severity of the current global downturn and the fact that the rating mix has changed dramatically with proportionally more lower-rated high-yield corporate issuers in the region's portfolio," adds Lau.
Lau was speaking on the release of a Moody's report -- which she authored
-- on projecting the default trend for rated non-finance high-yield corporates in Asia-Pacific (ex-Japan). The report looks at trends evident since the Asian financial crisis in 1997, discusses the acceleration in corporate default rates and examines the application of Moody's Credit Transition Model, a formal default forecasting model, to Asia.
The report says that from the start of the year till end-July, there were 10 rated non-finance corporate defaults (totaling USD3.3 billion in debt), five times the number for all of 2008.
"All the defaulters were speculative-grade issuers and the overwhelming majority was B-rated or below one year prior to their default," says Lau.
"Medium-sized listed Hong Kong companies with predominantly Chinese operations accounted for the majority of these defaults."
The report says that the basis of Moody's default estimates come from CTM adapted for Asia and adjusted to reflect the idiosyncrasies of the Asian portfolio.
Given the short and limited bond default history of rated Asia-Pacific (ex-Japan) non-finance corporates, and the absence of an established and representative high-yield bond spread for its corporates, there are limitations to utilizing CTM in reliably forecasting the high-yield default rate for the region's corporate portfolio.
Nevertheless, as adapted and adjusted, Moody's believes that the outcomes from CTM on the Moody's portfolio still serve as useful references/pointers in our estimates of the region's likely high-yield default trend.
The report is entitled, Rated Default Rates for Asian Corporates Expected to Peak in 4Q2009. It can be found at www.moodys.com
Hong Kong
Clara Lau
Senior Vice President
Corporate Ratings
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Sydney
Brian Cahill
Managing Director
Corporate Finance Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100