Credit conditions for non-financial companies in Asia Pacific continued to stabilise in the third quarter of 2009 -- as evidenced by the ongoing deceleration in negative rating actions since the second quarter -- while rated defaults are expected to peak in 4Q09, says Moody's Investors Service.
"While the number of negative actions still outnumbered that of positive actions in the third quarter, the gap narrowed substantially," says Clara Lau, a Moody's Group Credit Officer.
"For the region, negative actions fell to 22 in 3Q09 from 41 in 2Q09 and 81 in 1Q09. And positive rating actions rose slightly to 5 from 3 individually in both 2Q09 and 1Q09," says Lau on the release of a Moody's report -- which she authored -- on credit trends in the Asia Pacific (including Japan) in 3Q2009.
"This stabilisation reflects a steadying operating environment in many countries and industries, as well as improved intrinsic liquidity for a number of companies," says Lau. Moreover, credit spreads continued to tighten, enabling more companies to refinance or term out debt, and/or
strengthen capital structures.
"There was no increase in 'fallen angels' - credits that drop from investment grade to speculative grade -- and the third quarter showed the first potential, positive cross-over to investment grade for 2009," says Lau."
Declines in exports and production in export-oriented countries have stopped with improvements noticeable on a month-by-month basis for much of this year," adds Brian Cahill, Moody's Managing Director for Corporate Finance in Asia Pacific.Domestic consumption in a number of countries, including Hong Kong, Australia, Singapore, Korea and China, has held up
"Looking ahead, despite the moderating rating pressure, the overall credit outlook among non-financial corporates in Asia Pacific remains broadly negative, reflecting the uncertainties in the pace of recovery," says Lau.
As of now, 38%, 28% and 36% of rated Asia (ex-Japan), Australasia and Japan issuers, respectively, have negative outlooks, or are on review for possible downgrade.
While Moody's expects half of the countries in the region to achieve positive GDP growth -- with four of its major economies, China, India, Indonesia, and Australia on track for full-year GDP growth in 2009 -- the overall rate of growth will remain much weaker than Asia has been accustomed to in the past decade. "As a matter of fact, despite the likelihood that China is to achieve its 8% GDP growth target, which helps bolster regional exports, Asia Pacific's export growth overall is still negative year on year, indicating fragile external demand," says Lau.
As a result, weak end-demand, particularly from major industrialised markets, is hampering the ability of Asian corporates to materially improve profitability, says Moody's, adding that the extent of the rebound in the export-oriented sectors is expected to be muted, and industrial output in most Asian countries remains at levels well below pre-crisis levels.
"Japanese corporates remain one of the hardest hit due to weak domestic consumer demand and a strong Yen, which pressures the cost competitiveness of export-focused manufacturers," adds Lau.