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Moody's Investors Service says that its Asian Liquidity Stress Index (LSI) rose in January with 12.5% of its rated speculative-grade portfolio demonstrating inadequate liquidity compared with 9.3% in December, and a historical low of 9.0% in November.

"Unlike previous months, where the change was due to the withdrawal of ratings, the deterioration in January was largely the result of weakening liquidity profiles, particularly of Chinese corporates and more specifically of Chinese property developers," says Laura Acres, a Moody's Vice President and Senior Credit Officer.

Acres says the increase to 12.5% is the largest month-on-month deterioration since Oct-Dec 2008.

"Nevertheless, the index remains generally far below the 37% high recorded in Oct-Dec 2008 and is broadly in line with Jan-Mar 2011," adds Acres. "Overall, the number of issuers in the SGL-4 category rose to 12 in January from nine in December."

The Asian LSI measures the percentage of companies with the lowest speculative-grade liquidity rating (SGL-4), and increases when corporate liquidity appears to deteriorate.

"In addition, the ratio of downgrades to upgrades shows the peak of the credit cycle has passed. In the second half of 2011, there were more downgrades than upgrades. We are also seeing a very clear negative bias: in January, eight companies had outlook changes, and of these, six were negative, and one was put on review for downgrade," says Acres.

Looking ahead, markets in Asia will remain choppy and deals are still being delayed and pulled as the result of concerns over European sovereigns, while a more general economic slowdown in recent months is making investors nervous.

At the same time, January also saw the launch of a US$ bond by an Indonesian utility, Cikarang Listrindo, reinforcing our assertion that the markets could only be reopened by a higher-rated, existing issuer. But, it remains to be seen whether this will be sufficient to break the deadlock and reopen the floodgates to new issuers coming to the markets.

The amount of high-yield debt rated by Moody's in Asia fell in January to $40.1 billion from $47.8 billion in December, reflecting the move by two Indonesian Government Related Issuers (GRIs) to investment-grade after the upgrade of the sovereign to Baa3 from Ba1. The two accounted for $5.5 billion and $1.5 billion of this decline, respectively.

The net number of issuers fell in January to 96 from 97 at the end of December.

The monthly index looks at liquidity trends throughout the Asia-Pacific region (excluding Japan and Australia) for the speculative-grade companies Moody's rates, and quantifies the proportion of companies with inadequate liquidity.

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