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A new report by Moody's Investors Service adds new evidence to the belief that Asia's economies and businesses are recovering from the global recession. But while the liquidity profile of Asian Pacific corporates are improving, it still remains weak compared to the pre-crisis level.

The recently published report details the results of Moody's most recent survey of its portfolio. The survey shows that the number of companies with strong liquidity scores has improved on a quarterly basis since the end of 4Q08, while the amount of debt due for refinancing has declined in the most recent quarter.

"Despite the improvement, liquidity positions among rated Asia Pacific corporates remain weak relative to their positions before the financial crisis," said Laura Acres, a Moody's senior analyst and the report's author. She said that approximately one third of issuers have insufficient liquidity, which is down from 43% at the end of 2008, but still higher than 29% in 3Q07.

The report noted that refinancing risk has declined; at the end of 2Q09, US$128 billion in debt will come due over the next 12 months, down from US$150 billion at the end of 1Q09. Current debt falls to about US$75 billion if working capital lines and revolving credit facilities automatically roll over.

According to the report, speculative-grade companies in a similar position have much less flexibility given more restricted market access. In particular, a subgroup with tight covenant headroom may find debt being accelerated or require refinancing, which could contribute to numerous defaults in the next 12 months. Of the 10 issuers in this predicament, six are currently rated Caa1 or lower, two have bond ratings only one notch higher at B3, with negative outlooks, while the highest rating of the others is B1 negative, also with a negative outlook.

"Easing lending conditions have reduced immediate refinancing risk for investment-grade names, but weakened economies in the region and worldwide continue to put pressure on cash flows," noted Acres. "That being the case, we expect financial metrics to deteriorate further,  particularly for poorly positioned, speculative-grade issuers, rated single-B or below."