Ratings for non-financial corporates stable in Q2

Moody’s Investors Service says the rating trend for non-financial corporates in Asia-Pacific (ex-Japan) was stable in the second quarter, driven mainly by the stabilisation of the rating outlook for Chinese property companies and the better-than-expected performance of Indonesian developers.

“We expect the stable rating trend to continue for the rest of 2013, given our expectation that China’s GDP will grow 7-8 per cent during the year, the overall improvement in the liquidity profiles of Asian issuers, and our expectation that the availability of liquidity and credit will remain sufficient despite some tightening in China,” said Clara Lau, a Moody’s group credit officer.

Lau was speaking about a just-released Moody’s report titled “Stable Rating Trend for Asian Corporates at Mid-Year; Negative Trends Easing in Japan”.

According to the report, the share of Asian corporate ratings with stable outlook edged up slightly as of the end of June to 75 per cent, while the share of ratings with negative implications declined slightly to 18 per cent.

However, headwinds such as tightening liquidity and slowing economic growth in China could affect the stable rating trend. Moreover, uncertainty related to the timing of the end of the quantitative easing measures by the US government could result in volatility in the credit markets.

“We expect metals and mining, commodity-related and consumer-electronics companies to remain under pressure in the face of weakening demand from China,” Lau said.

Highly leveraged Chinese companies will also be vulnerable to the slowdown in the domestic economy, as they have limited financial flexibility to cope with a market downturn. Chinese property developers with low ratings are also susceptible to higher refinancing risks if liquidity tightens further in China.

Many South Korean companies will also remain under pressure as a result of weak growth in key export markets, subdued domestic consumer spending, and the appreciation of the won against the US dollar and the yen, as well as the aggressive investment strategies of some companies.

For Japanese non-financial corporates, the negative rating trend eased somewhat in the second quarter, despite the sluggish economy and the uncertainty related to global economic growth. The share of ratings with negative implications decreased to 42 per cent at the end of the second quarter from 44 per cent at the end of the first, while the share of stable outlooks edged up to 55 per cent from 54 per cent.

“We expect the pressure to continue easing during the rest of 2013, as Japanese corporates benefit from the weakened yen and demand arising from domestic reconstruction investments,” Lau said.

The rating trend for Australian and New Zealand corporates should also remain stable, except for metals and mining issuers, which will continue to grapple with weak commodity prices and demand as well as overcapacity.