Moody's: Asian Liquidity Stress Index Rises Slightly in July

by CFO Innovation Asia Staff, 07 August 2012

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Moody's Investors Service says that its Asian Liquidity Stress Index (LSI) inched up in July with 16.8% of its speculative-grade portfolio demonstrating weak liquidity compared with 16.2% in June.

"The July level was the Asian LSI's fifth consecutive month at the 15%-17% level, suggesting that the deterioration in liquidity -- which commenced in the fourth quarter of last year -- may have reached a plateau," says Laura Acres, a Moody's Senior Vice President.

"The index, which increases when speculative-grade liquidity appears to decrease, is at its highest level since September 2010, but is also well below the high of 37% posted during the fourth quarter of 2008 amid the financial crisis," adds Acres.

"Specifically, the uptick in July reflects the addition of one company to the SGL-4 roster -- Moody's lowest speculative-grade liquidity score -- and the assignment of two corporate family ratings, which increased the denominator," says Acres.

The report further notes that there was little rating activity in July, with just one corporate family rating downgrade and no upgrades.

During Q2 2012, the ratio of corporate family rating downgrades to upgrades was 4:1. It was the fourth consecutive quarter where downgrades outpaced upgrades, and Q2 also showed the highest ratio of downgrades to upgrades since Q2 2009.

The percentage of speculative-grade companies with a negative rating outlook or on review for downgrade remained near 35% in July.

In July, the net amount of high-yield debt rated by Moody's in Asia rose to $40.7 billion from $40.5 billion in June.

July also saw the first bond deal completed since April.

But, for the rest of the year, debt issuance will likely remain slow as long as uncertainty in the euro area continues.

If the sovereign-debt problems hurt economic growth in Asia or cause lenders to tighten their lending standards further, this will impact lending rates to speculative-grade companies and may result in deteriorating liquidity for some.

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