Moody's: Asia Pacific High Yield Corporate Defaults to Remain Low by End of 2013

Moody's Investors Service says the high-yield default rate for non-financial corporates in Asia Pacific (ex-Japan) will end the year at a low 1.6%; a level which is lower than the forecast 2% made in February, based on Moody's Credit Transition Model (CTM).


"The predicted default rate anticipates a continued narrowing of the high yield spread and stability of the high yield corporate portfolio," says Clara Lau, a Moody's Group Credit Officer.


The just-released Moody's report titled, "High-Yield Corporates in Asia Pacific (ex-Japan) Expected to End 2013 with Low Default Rate," says the proportion of ratings with negative outlooks fell significantly to 22% in August 2013 versus 37% at end-2012.


"The low estimated default rate of 1.6% translates into one or two defaults for all of 2013," says Lau.


"The forecast is also based on our assessment that if quantitative easing in the US recedes, it will be done in a measured manner and will not materially disrupt credit markets," comments Lau.


Moody's expects quantitative easing programs in the US to continue into 2014.


Furthermore, the low estimated default rate reflects our assumptions of continued gradual growth for advanced economies, and sustained but slower growth for major emerging economies such as China.


Moody's report also says that the average rating of companies in Moody's high yield portfolio remained at B1/B2 as of end-August; similar to the level as of end-2012.


Moody's report points out that in terms of rating transitions between August 2012 and July 2013, Asian investment grade corporates generally exhibited higher rating stability when compared with speculative grade issuers. In addition, investment grade firms in Asia displayed lower rating volatility than their global peers.


Moreover, while the rating trend for global corporates is generally negative, the opposite was true for Asian firms.


Moody's report also says there were more multi-notches rating movements for global corporates than for Asian firms, across all rating categories.


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