Asian Liquidity Stress Index Worsens for Three Consecutive Months

Moody's Investors Service says that its Asian Liquidity Stress Index (Asian LSI) -- which rises when speculative-grade liquidity appears to decrease -- inched higher for a third straight month in February, reaching 23.3% from 22.4% in January and 20.0% in December 2013.


"The deterioration in the Asian LSI reflects a net month-on-month increase in February to 27 from 26, the number of companies with our lowest (weakest) speculative-grade liquidity score of SGL-4," says Annalisa DiChiara, VP and Senior Analyst.


"Nonetheless, the index remains well below the record high of 37% reached in the fourth quarter of 2008, during the global financial crisis. It is also just above the long-term rolling average of 20%," adds DiChiara, speaking on the release of Moody's latest report on the index.


In contrast to the Asian LSI, the liquidity sub-index for Chinese speculative-grade companies improved to 25.4% in February, after rising to 27.0% in January from 22.2% in December 2013.


The change reflects the number of Chinese companies with SGL-4 scores decreased by one to 16, and the number of rated high-yield Chinese companies remained at 63.


As for China's high-yield property sub-index, covering 38 companies over the last two months, the reading decreased in February to 21.1% from 23.7% in January, reflecting a decline to eight from nine, the number of property companies with an SGL-4 score.


The Indonesian sub-index was unchanged for a second consecutive month, with the number of SGL-4 companies remaining at one, and the number of speculative-grade Indonesian firms holding at 25.


The Australian index, which does not factor into the Asian LSI, improved for a third month to 23.5% from 26.7% in January and 28.6% in December 2013. While the number of companies with an SGL-4 score remained at four over the last three months, the number of speculative-grade companies rose to 17 in February from 15 in January.


Moody's report also points out that high-yield bond issuance slowed in February after a busy January, in which 11 deals were launched. Moody's expects issuance to slow in 2014 from the record $23.3 billion of rated issuance that priced in 2013, because many companies have already addressed their refinancing needs.


In addition, the phased reduction of the US Federal Reserve's asset purchase program is likely to push interest rates higher, making it more expensive for companies to issue and service debt.


Moody's had assigned speculative-grade ratings to 116 issuers in Asia (excluding Japan and Australia) covering $64.2 billion of rated debt by end of February 2014, the same number of rated issuers in January.


However, at end-January, total rated debt was slightly lower, at $63.5 billion.

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