Moody’s sees negative ratings trend for Asian firms

Reuters: Defaults by Asian companies are likely to rise this year as the economic environment deteriorates and credit becomes tighter with European lenders reducing their exposure to the region, ratings agency Moody’s Investors Service said on Thursday. “Asian sectors most vulnerable to adverse policy tightening, cyclicality, and excess capacity include Chinese property developers, as well as the refining and marketing, technology and semiconductor sectors,” Moody’s said in a report.

“Weakening or volatile domestic currencies will likewise increase cost pressures for importers in countries such as India and Korea,” the US ratings agency added.

Moody’s said it expects a negative ratings trend for Asian corporates, indicating there will likely be more ratings downgrades than upgrades this year.

Asian economic growth has slowed in recent months, hurt by problems in Europe.

On Wednesday, South Korea posted a shock 6.6 per cent annual drop in exports for January and saw new export orders fall for a sixth consecutive month. Hong Kong also warned the territory faced a grim year.

Indonesia’s largest oil-and-gas shipping company PT Berlian Laju Tanker Tbk (BLTA.JK) (PTBL.SI) froze payments on its debt of $2 billion last week, blaming a slump in freight markets.

Moody’s said the lack of investor appetite for high-yield bonds will restrain prospects for Asian corporate issuers, and it expects defaults in Asia to rise moderately in line with the global trend.

But while weaker firms will face difficulty in raising or rolling over debt, most Asian corporate issuers will find 2012 and 2013 to be manageable.

“About 90 per cent of total refinancing among both domestic and cross-border issuance reside with investment-grade corporate issuers, of which 77 per cent are domestic bonds issued by blue-chip firms, well-recognised local names, or quasi-sovereign entities,” Moody’s said.

“The likelihood of a credit crunch in Asia is low, thanks to strong finances in most Asian governments and generally healthy, well-capitalised banking systems,” it added, based on the assumption there will not be a full-blown European sovereign and financial crisis.

Nevertheless, the availability of credit in Asia will remain tight amid heightened risk aversion of both investors and banks.

“Banks in Europe must deleverage to meet regulatory capital requirements, and two years of rapid loan growth in key Asian countries will constrain future lending,” Moody’s said.