Bangkok--16 Sep--Fitch Ratings
In its annual EMEA and Asia-Pacific corporate liquidity study, Fitch Ratings says that Asia-Pacific corporates continue to rely heavily on 'relationship banking' to maintain their external liquidity requirements. Furthermore, since last year's study, having procured a greater proportion of short-term funding, and with a greater weighting in bank versus bond debt, these corporates' debt maturity profiles are getting shorter.
Fitch's liquidity study shows that 34% of its 'BBB'-and-below-rated corporates in Asia-Pacific have liquidity scores below 1.0x in 2010 (41% in 2011), hindered by thin, if not negative free cash flow (FCF) and few long-dated committed bank facilities. In the study, Fitch updates forecasts of corporates' profitability, and assumes use of existing short-dated bank lines and cash, but does not assume automatic renewal of bank lines that are primarily uncommitted or new debt issuance.
"The study shows some vulnerability among Asia-Pacific corporates caused by dependence on short-dated and uncommitted facilities," says John Hatton, Group Credit Officer in Fitch Rating's Corporates rating group.
"Despite long-standing renewals of such short-term facilities, particularly in higher-sovereign rated Asian jurisdictions, Fitch believes this level of exposure to refinancing risk is not shared with developed markets outside the region, " added Hatton.
Fitch views Asia's banking systems as having coped better with the recent economic turmoil than other regions, but the heavy reliance by Asian corporates on local banking systems for funding does present a level of unquantifiable tail risk (see Fitch's most recent "Bank Systemic Risk Report", published 11 May 2009)
Fitch's analysis nonetheless includes a broader range of considerations in assigning ratings. Fitch acknowledges that many of the Asia-Pacific entities with the lowest liquidity scores also benefit from a higher-than-average likelihood of renewal of bank facilities (particularly the case for Japanese groups), or that state support is factored in the rating (particularly Chinese state-owned enterprises), and/or that scheduled capital expenditure can and will be cut back if external liquidity was curtailed (notably the case for utilities).
The liquidity scores are broadly defined as FCF before dividends, plus cash-in-bank, plus existing committed bank line headroom, less future committed capex divided by short-term debt maturities for the relevant period.
The special report "Corporate Liquidity Study - EMEA and Asia-Pacific", covering some 220 corporate entities rated 'BBB' and below, is available on the agency's website, www.fitchratings.com.
Contacts: John Hatton, London, Tel: +44 (0) 20 7417 4283; Tony Stringer, Hong Kong, Tel: +852 2263 9559.
Media Relations: Karen Cho, Hong Kong, Tel: +852 2263 9935, Email: [email protected]; Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: [email protected]; Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: [email protected].
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.