Rating trend for corporates in Asia-Pacific remained negative in 3Q2012 as negative rating actions continued to outnumber positive actions by a large margin of 15 to 5, says Moody's Investors Service.
"However, this downward credit trend is expected to stabilise for the rest of the year, in view of the easing in monetary measures implemented by governments in the region and signs of a stabilizing economy in China," says Clara Lau, a Moody's Group Credit Officer. "In this context, Moody's macroeconomic central scenario for GDP growth in China is in the range of 7 to 8% in 2012 and 2013."
Lau adds that access by companies to liquidity, especially for speculative grade companies, is therefore expected to improve, while operating performances will also demonstrate steadiness. Furthermore, the corporates themselves will also help by adjusting or delaying their capital expenditure and investment plans.
"The expected stabilising trend for the rated portfolio is be supported by anticipation that the downturn in the steel sector is bottoming and liquidity pressures on Chinese property developers are softening," adds Lau. Both sectors were the major contributors to the negative trend in 3Q2012.
The negative trend in 3Q2012 primarily reflected the deterioration in fundamentals in the metals and mining sector, in particular coal and steel. The latter sector is characterised by overcapacity and weakened demand as a result of the problems in the euro zone and the slowdown in China.
Another key driver of the negative trend was the fact that disappointing operating performances -- as a result of lackluster housing markets -- created liquidity pressures for the less established Chinese property developers.
During 3Q2012, the share of ratings in the rated portfolio with negative implications remained high at 25%, the same as 2Q2012, according to the Moody's report. At the same time, the proportion of ratings with stable outlooks was at a relatively low 69% compared to the usual 80% level.
Similar to the previous quarter, 73% of the negative actions affected speculative grade companies, mainly resources and property issuers. Geographically, Chinese rated issuers continued to drive the negative rating trend, accounting for 40% of total actions, followed by Indonesian and Korean issuers, both at 20%.