Moody's: Stable Credit Trend for Asian Non-Financial Corporates

Moody's Investors Service reports a stable rating trend for non-financial corporates in Asia Pacific (ex-Japan) through mid-May 2013, and expects overall credit conditions to be benign for most issuers for the rest of the year.


"The cyclical industries, which include metals and mining, shipping, and commodities-related businesses, will remain more vulnerable to economic headwinds than other sectors," says Clara Lau, a Moody's Group Credit Officer.


Lau was speaking on Moody's just-released special comment titled, "Credit Trends Have Stabilized for Asian Corporates, But Remain Negative for Japanese Issuers."


Korean companies, particularly steel makers, chemical, construction and electronics companies and retailers are expected to face a challenging operating environment, given sluggish domestic growth, slow external demand and the strengthening in the KRW.


"About 38% of Moody's rated Korean corporates have either negative outlooks, or are on review for downgrade," says Lau.


At end-1Q2013, the share of ratings in Asia (ex-Japan) with stable outlooks increased to 74% from 71% at end 2012, whereas the share of outlooks with negative implications decreased to 19% from 23%.


In 1Q2013, the rating trend tracker, which is the ratio of the number of upgrades over the number of downgrades, remained at slightly above one for Asian corporates, with eight positive actions versus seven negative.


The report cites developments in the EU, the ability of China to maintain its targeted growth levels, and the continuation of monetary easing as the key swing factors for ratings stability in the region for the rest of the year.


Unfavorable developments in any of these areas will weaken market confidence and disrupt credit availability, leading to negative pressure on the operating and financial performance of corporates.


The positive actions in 1Q2013 were mainly driven by the upgrades of property companies with Singapore REITs, accounting for 38% of the positive actions and speculative-grade Chinese property issuers, accounting for 25%.


Singaporean REITs have demonstrated improved financial flexibility, whereas the Chinese property developers managed to improve their liquidity profiles.


On the other hand, the negative actions were mainly driven by metals and mining issuers (coal and steel), accounting for approximately 57% of the negative actions. The main factors were slowing demand growth and overcapacity, leading in turn to margin pressure.


However, the rating trend for non-financial corporates in Japan remained predominantly negative in 1Q2013, with four negative actions and no positive actions compared to three negative and one positive in 4Q2012.


The negative trend was the result of a sluggish Japanese economy, a weak global macroeconomic trend, slowing demand from China, and a weakening in the overall competitiveness of Japanese companies. Moody's, however, expects such negative pressure to ease, reflecting the benefits of a weakening JPY for export-oriented corporates and the positive impact of restructuring undertaken by Japanese corporates over the past two years.


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