'Stable' outlook for Asian ex-Japan non-financial firms

A gradual improvement in external demand, especially from the United States, is expected, as are still-accommodative global monetary conditions and an orderly economic rebalancing in China. Against a supportive macroeconomic backdrop, most of the Asian corporations rated by Moody’s will maintain sufficient liquidity and access to financing to manage their borrowing and refinancing needs.

Most industry and corporate rating outlooks are “stable”. Large industries including steel, telecommunications, utilities and refining have “stable” outlooks. Only coal and Chinese property have “negative” outlooks. More than 80 per cent of Moody’s corporate rating outlooks are “stable”. However, a negative bias remains, with almost twice as many companies on “negative” outlook or review for downgrade than “positive” or review for upgrade.

Rated entities can absorb rebalancing in China. Adequate liquidity, healthy access to bank funding and market-oriented reforms will help most rated Chinese corporations weather a measured growth slowdown and property-market weakness.

Leverage is expected to stabilise and moderate cross-border refinancing needs, but weaker names in industries 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.

Indian companies face improving credit conditions. Moody’s changed its outlook on India’s corporate sector to “stable” from “negative” on its expectation that the economic recovery, enhanced access to global capital markets and successful implementation of pro-market policies will lead to improved corporate cash flows. Improved external vulnerability should also reduce foreign-exchange risk for corporations, despite gradual interest-rate normalisation by the US Federal Reserve.

Its outlook will likely turn “negative” if China’s property market and real economy fail to stabilise, with headline growth falling below 6 per cent, or normalising US monetary policy triggers a spike in regional borrowing costs and forex volatility, leading to liquidity and refinancing concerns among Asian issuers. 

Conversely, a “positive” outlook will be considered if successful passage of economic reforms across the region – notably in China, India and Indonesia – leads to improved growth quality, market liberalisation and higher productivity, the ratings agency said.