Moody's Investors Service says that its monthly Asian Liquidity Stress Index fell in July to a 3-year low
with just 11.4%, or some 12 names, of its rated speculative-grade portfolio demonstrating inadequate
"The index, which declines when corporate liquidity appears to increase, has been around 12%-13% since
the start of the year and was at 12.3% in June and May," says Laura Acres, a Moody's Vice President and
Senior Credit Officer.
"Looking ahead, we think liquidity will not show any further material improvement from its current level
due to ongoing reliance by Asian issuers on local banks to provide uncommitted funding," says Acres. "And
given the relatively small rated universe of 105 issuers, just one issuer moving in or out of the speculative grade liquidity rating category of SGL- 4 will move the index by 0.9%."
At the same time, Moody's notes that growing concerns about the threat of default in some European
sovereigns has resulted in deals being delayed and pulled, and the traditional summer lull has also slowed new issuance.
In such an environment, Moody's considers that speculative-grade companies could face higher financing costs, and weaker businesses could find access to credit more limited if investors, particularly those outside the region, decide it is too risky to lend to low-rated companies.
Across Asia, liquidity continues to vary from country to country.
The percentage of speculative-grade companies with inadequate liquidity is higher in Indonesia, at 15.4%
as at 31 July, than in the overall Asian portfolio.
This situation is partly due to companies there relying more on domestic and regional bank markets as well as uncommitted funding.
In contrast to Indonesia, liquidity for Chinese companies is stronger than the overall speculative-grade portfolio, at 9.1% as of 31 July. It is even stronger for Chinese property companies, at 7.7% since 31 March.
This is due to a surge of high-yield debt issued by rapidly expanding Chinese corporates last year and in
the first half of this year, as companies raised funds for refinancing and capital expenditure.
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