Bangkok--29 Oct--Moody's Investors
Moody's Investors Service says that credit conditions for non-financial companies in Asia Pacific continued to stabilize in 3Q09 -- as evidenced by the ongoing deceleration in negative rating actions since 2Q09 -- while rated defaults are expected to peak in 4Q09.
"While the number of negative actions still outnumbered that of positive actions in 3Q09, the gap narrowed substantially," says Clara Lau, a Moody's Group Credit Officer.
"For the region, negative actions fell to 22 in 3Q09 from 41 in 2Q09 and 81 in 1Q09. And positive rating actions rose slightly to 5 from 3 individually in both 2Q09 and 1Q09," says Lau on the release of a Moody's report -- which she authored -- on credit trends in the Asia Pacific (including Japan) in 3Q2009.
"This stabilization reflects a steadying operating environment in many countries and industries, as well as improved intrinsic liquidity for a number of companies," says Lau. Moreover, credit spreads continued to tighten, enabling more companies to refinance or term out debt, and/or strengthen capital structures.
"There was no increase in 'fallen angels' — credits that drop from investment grade to speculative grade -- and 3Q09 showed the first potential, positive cross-over to investment grade for 2009," says Lau.
"Declines in exports and production in export-oriented countries have stopped with improvements noticeable on a month-by-month basis for much of this year," adds Brian Cahill, Moody's Managing Director for Corporate Finance in Asia Pacific.Domestic consumption in a number of countries, including Hong Kong, Australia, Singapore, Korea and China, has held up well.
"Looking ahead, despite the moderating rating pressure, the overall credit outlook among non-financial corporates in Asia Pacific remains broadly negative, reflecting the uncertainties in the pace of recovery," says Lau.
As of now, 38%, 28% and 36% of rated Asia (ex-Japan), Australasia and Japan issuers, respectively, have negative outlooks, or are on review for possible downgrade.
"While we expect half of the countries in the region to achieve positive GDP growth -- with four of its major economies, China, India, Indonesia, and Australia on track for full-year GDP growth in 2009 -- the overall rate of growth will remain much weaker than Asia has been accustomed to in the past decade. As a matter of fact, despite the likelihood that China is to achieve its 8% GDP growth target, which helps bolster regional exports, Asia Pacific's export growth overall is still negative year on year, indicating fragile external demand," says Lau.
"As a result, weak end-demand, particularly from major industrialized markets, is hampering the ability of Asian corporates to materially improve profitability," says Lau. "In particular, the extent of the rebound in the export-oriented sectors is expected to be muted, and industrial output in most Asian countries remains at levels well below pre-crisis levels."
"Japanese corporates remain one of the hardest hit due to weak domestic consumer demand and a strong Yen, which pressures the cost competitiveness of export-focused manufacturers," adds Lau.
The report is entitled, "Asia-Pacific Corporate Credit Trends Are Stabilizing." It can be found at www.moodys.com