Moody's: Asian Liquidity Stress Index up in April

Moody's Investors Service says that its Asian Liquidity Stress Index (Asian LSI) inched up to 27% in April from 26.9% in March. While the deterioration was slight, it was the second consecutive month that the index had worsened.


"The slight increase in the Asian LSI reflects firstly the addition of a Chinese issuer to our lowest (weakest) speculative-grade liquidity score of SGL-4, and secondly, the inclusion of three new high-yield ratings in April -- all of which relate to Chinese issuers -- which tempered the impact of the marginally higher number of companies with SGL-4 scores," says Laura Acres, a Moody's Senior Vice President.


The index -- which rises when speculative-grade liquidity appears to decrease -- has increased steadily within a narrow range since reaching a recent high of 29.1% in October 2012.


Nonetheless, the recent levels are below the record high of 37% seen in the fourth quarter of 2008, or during the global financial crisis, but are well above the all-time low of 9% in November 2011.


"On the other hand, the number of companies with an SGL-1 score, reflecting very good liquidity, increased to 13 in April from 11 in March and February and, in percentage terms, is at the highest level since we started publishing this data. Overall, the number of SGL-1 scores has increased gradually this year after holding steady for much of 2012," says Acres.


"In addition, the total number of rated high-yield companies increased to 111 in April from 108 in March. The number of ratings and the amount of rated debt, at $58.7 billion, are at all-time highs. Moreover, we assigned first-time corporate family ratings (CFR) to three companies in April, all of which are China-based issuers," adds Acres.


Looking ahead, according to the report, the high-yield default rate for Asia Pacific (ex-Japan) corporates will stay at a low 2% in 2013. It will trend downwards during the first half of the year and rise mildly in the second half. The 2% translates into one or two potential defaults.


The report also says in terms of the liquidity sub-index for Chinese speculative-grade property companies, the index decreased to 31.4% in April from 32.4% the month before.


In contrast, the Indonesian sub-index for speculative-grade companies as a whole was unchanged for a fourth consecutive month at 12.5%, and the Australian index was also flat, at 9.1%.


Moody's report points out that the number of high-yield bond issuances slowed in April. Seven companies successfully issued bonds totaling approximately $2 billion, versus the nine companies in March that raised $3.2 billion.


Nevertheless, the first four months of 2013 saw a total of 36 rated, high-yield bond deals closing, which raised an aggregate $13.4 billion; an amount that was more than that raised in the whole of 2012 and 2011.


"While we did not change the corporate family ratings of any companies in April, we changed the outlooks of two companies, both in a negative direction," says Acres.


As a result, the percentage of companies with a negative outlook or on review for downgrade rose slightly to 23.4% in April from 23.1% in March. The number of companies with a positive outlook was unchanged, at 10.


Moody's report notes that liquidity in Asia is generally weaker than in other regions, partly because its debt capital markets are not as mature and also because corporates rely more on local bank markets for uncommitted funding.


Relationship banking, which relies on rolling over short-term and uncommitted lines of credit rather than providing committed levels of funding, is far more common in Asia than other major economic regions. This reliance on the domestic bank markets has contributed to the Asian LSI's elevated level relative to other regions.

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