Moody's: Stable Outlook for Asian Non-Financial Corporates in 2015

Moody's Investors Service says its outlook on Asia's non-financial corporates (excluding Japan) remains stable, reflecting a modest improvement in external demand, led by the US, still-accommodative global monetary conditions, and an orderly economic rebalancing in China.

"Against a supportive macroeconomic backdrop, the majority of our rated Asian corporates will maintain sufficient liquidity and access to financing to manage their borrowing and refinancing needs," says Philipp Lotter, a Moody's Managing Director.

According to Moody's, most industry and corporate outlooks are stable. Large industries including steel, telecommunications, utilities and refining have stable outlooks. Only coal and Chinese property have negative outlooks.

The major share of Moody's corporate rating outlooks, at over 80%, is stable. However, a negative bias remains with almost twice as many rated companies on negative outlook or review for downgrade when compared to positive or review for upgrade.

"Rated entities can absorb the effects of rebalancing in China. Adequate liquidity, healthy access to bank funding, and market-oriented reforms will help most rated Chinese corporates absorb a measured slowdown in growth and weakness in the property market," says Gary Lau, a Moody's Managing Director.

"Moreover, we expect leverage to stabilize and cross-border refinancing needs to moderate. That said, weaker names in sectors such as property and mining will continue to face downward ratings pressure on the back of China's economic rebalancing away from investment and credit-led growth," adds Lau.

Moody's has changed its outlook on India's corporate sector to stable from negative owing to an expectation that economic recovery, enhanced access to global capital markets and successful implementation of pro-market policies will lead to improved corporate cash flows.

A fall in the level of external vulnerability should also reduce foreign-exchange risk for corporates, despite gradual interest rate normalization by the US Federal Reserve.

The outlook for Asian corporates would likely turn negative if China's property market and real economy failed to stabilize, with headline growth falling below 6%, or the normalization in US monetary policy triggered a spike in regional borrowing costs and foreign-exchange volatility, leading to liquidity and refinancing concerns among Asian issuers.

Moody's says it would consider a positive outlook if the successful passage of economic reforms across the region -- notably in China, India and Indonesia -- led to improved growth quality, market liberalization and higher productivity.


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