2014 Asian High-Yield Corporate Default Rate Remains Low: Moody's

Moody's Investors Service says that the trailing 12-month high-yield default rate for Asian corporates is estimated to remain low at 2.9% in 2014 based on Moody's Credit Transition Model (CTM).


"The estimate is slightly higher than the default rate of 2.1% in 2013, but will remain significantly lower compared to the 14.6% recorded at the peak of the global financial crisis in 2009," says Clara Lau, a Moody's Group Credit Officer. 'The estimate translates into two to three potential defaults within the rated portfolio,' adds Lau.


Moody's 2.9% estimated high-yield default rate for 2014 reflects the rating agency's expectation of a gradual stabilization of the global economy, with economic recovery in the US strengthening and signs of stabilization in the European economies. It also reflects an overall stable credit outlook for the rated portfolio.


"The estimate is also predicated on our view that the effects of the US Federal Reserve's tapering of quantitative easing measures will have gradual impacts on both developed and emerging economies. We expect, for instance, that while growth in the Chinese economy will slow, it will reach approximately 7%-8%," says Lau. 'Furthermore, we also do not expect negative rating actions of the rated portfolio to materially outpace positive ones, in view of the gradual stabilization of the global economy,' adds Lau.


Based on Moody's forecasting model, it expects the global speculative-grade corporate default rate to finish 2014 at 2.1%, slightly lower than the 2.9% in 2013, whereas the US and European high yield corporate default rates are forecasted to end 2014 at 2.3% and 1.6% respectively.


Moody's report further states that there were two rated defaults in 2013, resulting in the Asian High Yield corporate default rate ending the year at 2.1%. Both defaults were in the metals and mining sector, namely Winsway Coking Coal Holdings Limited (Caa3 negative) and Mirabela Nickel Ltd (Ca negative, rating was subequently withdrawn), reflecting the very challenging market conditions faced by the industry last year.


Rating transition trends for Asian corporates remained broadly unchanged in 2013, following the general pattern in which Asian investment grade corporates generally show greater rating stability compared to speculative grade issuers. The higher rating transition risk exhibited by Asian speculative grade issuers was mainly because of rating actions on Chinese issuers, mostly metal and mining companies and property developers.


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