Rise in credit defaults seen

Win Udomrachtavanich, executive chairman of KTB Securities (Thailand), said yesterday that the global economy is shifting from a “super cycle of liquidity” to a “depression of liquidity”, which will end with a recession, which has been recurring every 10-15 years. 
Businessmen could no longer enjoy abnormal liquidity, he told a forum on Thailand’s corporate credit outlook held by Fitch Ratings Thailand. The credit cycle had already reached the mature stage, and the banking industry has raised its interest rate. 
With the overleveraging cycle, corporate equity will decrease in contrast with a higher debt-to-equity ratio. It would be difficult for businesses to get loans or find financial sources. Their cost of funds will be higher.
“After the financial crisis 20 years ago, Thailand has no significant change in reshuffling the country, both the economic and people infrastructure and their thinking. We just use money to buy time,” he said. 
The country is now in a period of depression.The credit outlook is for more rating downgrades over the next months due to the combination of a tighter company financial situation and the stricter credit standards of banks in lending.
“Besides the impact to credit rating, we do believe that the credit spread will be wider from the increase in the risk averseness of investors, who will pull out their investment from bad-performing companies,” he said.
“In terms of default, we expect that the potential of default transactions is still valid but the impact should not be contagious since most defaults arise from private placement transactions,” he said.
“We recommend investors to carefully pick corporates for debenture investment that should avoid high-gearing stocks with low liquidity in their financial position,” he added.Lertchai Kochareonrattanakul, senior director for corporates/funds at Fitch Ratings Thailand, said about that with reference to corporate credit warning signals, that to invest in particular firms, investors should not look at yields, but also credit ratings, which reflect their ability to pay debts in the future. 
“Thailand has been experiencing a fragile economic recovery with a low level of consumer demand and business expansion, high household debt and weak agricultural prices,” he said. “The country has relied heavily on government spending.” 
Bandid Nijathaworn, president and CEO of the Thai Institute of Directors, said the economy would see moderate expansion next year with a 2-3-per-cent increase in GDP, mainly driven by public investment, tourism and the recovery in export of certain commodities.