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Most Asian companies resilient to EU recession
By Ping Luo and Chris Park |
September 14, 2012, Friday
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DIRECT impact of looming Europe Union recession is still moderate for most Asian corporates (ex-Japan), while indirect risks are rising as weak exports to the EU contribute to a slowdown in Asia.
We expect that over 95 percent of rated corporates in Asia (ex-Japan) will remain resilient to the direct impact of ongoing economic turmoil in the EU. These firms generated less than 15 percent of their total reported revenues in 2011 from the EU and have limited dependence on European banks for funding.
Fewer than 5 percent of rated corporate issuers in Asia (ex Japan) face immediate credit risks from an EU recession. Only 11 of 228 rated Asian corporates generated over 15 percent of their revenues from the EU. That compared with 13 when we last conducted our survey. Of the 11 corporates, Tata Steel, Hutchison Whampoa, Aneka Tambang, BW Group, and Tata Motors are more vulnerable to a looming recession in the EU.
Although the direct impact of the EU slowdown remains moderate, broader negative credit trends have appeared across Asia, and particularly in China, as weaker exports to Europe contribute to a slower pace of economic growth in Asia.
Firms in cyclical industries, such as shipping, ports, consumer electronics, chemicals, mining, and steel, are more susceptible to unfavorable macroeconomic fundamentals. As a result, 25 percent of Asian issuers had negative rating implications at the end of June 2012, up from 16 percent at the end of 2011. The rating trend of our rated portfolio in Asia (ex-Japan), which has turned negative, reflects the softening in Asian economies.
Shipping and ports are at particular risk because these sectors also have large exposure to Europe while steel, chemicals, and mining face margin pressure and lower profitability from weak demand in Asia.
Ongoing deleveraging by EU banks does not present big funding risks for Asian corporate issuers, because these companies have only limited reliance on funding from EU banks. Their primary funding markets of domestic banks and capital markets remain liquid. Robust growth of total bond issuances in the region and of bank lending in China, Korea, and Indonesia reflect this still ample liquidity.
Continuing growth
We note the continuing growth in domestic bank lending in key markets such as China, where year-to-date lending by financial institutions grew 16 percent year-on-year as of July 2012, compared with a 14 percent year-on-year growth rate as of December 2011.
Asia's high-yield bond market has seen some tightening in cross-border funding, driven by lower investor confidence and increased risk aversion. However, this tightening will not put much pressure on the liquidity of high-yield corporates because these companies rely mainly on domestic banks and local capital markets for their funding.
The total cross-border issuance of 49 high-yield corporates that we rate in China accounted for only 20 percent of the firms' total reported debt as of December 2011. Moreover in the last three months, some of China's high-yield issuers have refinanced maturing offshore debt through local financing channels rather than through cross-border funding.
The above article is an abstract from a Moody's Investors Service report written by Ping Luo, vice president and senior analyst, and Chris Park, vice president and senior credit officer. All opinions are their own.
We expect that over 95 percent of rated corporates in Asia (ex-Japan) will remain resilient to the direct impact of ongoing economic turmoil in the EU. These firms generated less than 15 percent of their total reported revenues in 2011 from the EU and have limited dependence on European banks for funding.
Fewer than 5 percent of rated corporate issuers in Asia (ex Japan) face immediate credit risks from an EU recession. Only 11 of 228 rated Asian corporates generated over 15 percent of their revenues from the EU. That compared with 13 when we last conducted our survey. Of the 11 corporates, Tata Steel, Hutchison Whampoa, Aneka Tambang, BW Group, and Tata Motors are more vulnerable to a looming recession in the EU.
Although the direct impact of the EU slowdown remains moderate, broader negative credit trends have appeared across Asia, and particularly in China, as weaker exports to Europe contribute to a slower pace of economic growth in Asia.
Firms in cyclical industries, such as shipping, ports, consumer electronics, chemicals, mining, and steel, are more susceptible to unfavorable macroeconomic fundamentals. As a result, 25 percent of Asian issuers had negative rating implications at the end of June 2012, up from 16 percent at the end of 2011. The rating trend of our rated portfolio in Asia (ex-Japan), which has turned negative, reflects the softening in Asian economies.
Shipping and ports are at particular risk because these sectors also have large exposure to Europe while steel, chemicals, and mining face margin pressure and lower profitability from weak demand in Asia.
Ongoing deleveraging by EU banks does not present big funding risks for Asian corporate issuers, because these companies have only limited reliance on funding from EU banks. Their primary funding markets of domestic banks and capital markets remain liquid. Robust growth of total bond issuances in the region and of bank lending in China, Korea, and Indonesia reflect this still ample liquidity.
Continuing growth
We note the continuing growth in domestic bank lending in key markets such as China, where year-to-date lending by financial institutions grew 16 percent year-on-year as of July 2012, compared with a 14 percent year-on-year growth rate as of December 2011.
Asia's high-yield bond market has seen some tightening in cross-border funding, driven by lower investor confidence and increased risk aversion. However, this tightening will not put much pressure on the liquidity of high-yield corporates because these companies rely mainly on domestic banks and local capital markets for their funding.
The total cross-border issuance of 49 high-yield corporates that we rate in China accounted for only 20 percent of the firms' total reported debt as of December 2011. Moreover in the last three months, some of China's high-yield issuers have refinanced maturing offshore debt through local financing channels rather than through cross-border funding.
The above article is an abstract from a Moody's Investors Service report written by Ping Luo, vice president and senior analyst, and Chris Park, vice president and senior credit officer. All opinions are their own.
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