Pressure on Asian companies' ratings to ease

Rating downgrades will still outpace upgrades this year for Asian companies, but the pressure should ease, Moody’s Investors Service says

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In its 2013 outlook for companies in Asia ex-Japan, the rating agency sees downward pressure on firms’ credit ratings easing due mainly to “a stabilizing Chinese economy, an expectation of continued accommodative monetary policies, and the manageable level of refinancing risks.”

There will be fewer negative rating actions for companies in Asia this year compared to last year, as the agency’s central scenario is that the Asian region (except Japan) will “significantly outperform” the still-weak global economy, according to Clara Lau, a credit officer at Moody’s.

"Moody's expectation that economic conditions will be largely unchanged in 2013 suggests a gradual shift towards more stable rating trends overall, and modest improvements in the credit trends for some industries," Lau said in a statement.

But she said negative rating actions will still outpace positive ones because of weak growth in developed markets – which affects exporters from Asia – and China’s slower advance.

The most vulnerable sectors to the weaker global economy are coal and mining (with a negative outlook), shipping (negative), consumer electronics (negative) and semiconductors.

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The sectors that are likely to be affected to a lesser extent are steel (stable outlook), refining and marketing (stable) and property developers in China (stable), according to Moody’s.

The credit quality of Chinese corporate issuers “should stabilize” due to “continued ample market liquidity, modest growth in property sales and public investments in infrastructure projects,” the rating agency said.

SOVEREIGNS SEEN STABLE

In Korea, however, companies will face downward rating pressures because of the sluggish housing market and subdued private consumption, the appreciation of the won and aggressive investment strategies by companies despite their limited financial cushions, according to Moody’s.

The credit quality of companies in India should remain stable this year due to better growth prospects than last year but they will face challenges because of weak infrastructure support and regulatory constraints.

Indonesian companies’ credit quality is also seen as stable, underpinned by economic growth, but those in the commodity sector will be under pressure because of “unfavourable demand and supply fundamentals,” the report said.

Sovereign credit profiles in Asia Pacific as a whole are likely to withstand the risks coming from weak global growth and “the persistence of extraordinary monetary easing by the US Federal Reserve,” Moody’s said in a separate report.

It expects the region to continue to grow faster than others.