Moody's declares continuation of negative rating trend for APAC corporates in 2016

There is rising pressure on companies' performances.

Moody's Investors Service has noted that that the negative rating trend for Asian non-financial corporates in 2015 will worsen in 2016.

According to a release from Moody's Investors Service, this is because pressure is increasing on the companies' operating and financial performance, as demand weakens due firstly to China's slowing economy, and secondly to overcapacity and therefore depressed prices in the oil and commodities industries.

"Upstream oil companies as well as metal and mining firms are the most pressured because of the protracted downturn in the oil and commodities industries," says Clara Lau, a Moody's Group Credit Officer.

"Rising USD interest rates and a slower growth outlook for Asia and in particular China could lead to capital market volatility, resulting in higher credit risk, especially for issuers with weak operating performance or liquidity," adds Lau.

Nevertheless, Lau says Moody's expects that continued monetary easing by the Chinese and EU authorities will keep the liquidity of corporates in Asia Pacific manageable.

Here's more from Moody's Investors Service:

Lau was speaking on Moody's just-released report titled "Credit Policy: Negative Rating Trend for Asia Pacific Corporates to Deepen in 2016". The rating trend for Japanese corporates should remain stable in 2016, but headwinds are increasing, particularly for oil and oil service issuers, and firms with large exposures to China.

For Australian and New Zealand corporates, Moody's expects the negative rating trend to continue, driven by metal and mining issuers. Such issuers accounted for half of the negative outlooks in Moody's portfolio of Australian and New Zealand issuers at end-2015.

As for the rating trend for Asia Pacific corporates for all of 2015, Moody's says the trend was negative. Moody's adjusted rating trend tracker was at 0.41x in 2015, similar to the 0.38x seen in 2014. However, the number of rating actions in 2015 — both positive and negative — was higher, with 42 positive and 103 negative rating actions compared to 26 positive and 68 negative actions in 2014.

Chinese issuers accounted for about 40% of the total negative rating actions in 2015. Issuers in oil and commodities and related industries accounted for about 36% of the total negative rating actions in 2015, reflecting the severe downturn in the commodity cycle.

On a quarter-on-quarter basis, the rating trend deteriorated more notably in 4Q 2015, with 11 positive and 40 negative actions compared to 13 and 24 respectively in 3Q 2015. The number of negative actions in 4Q 2015 was the highest for the four quarters of 2015. The rise in negative rating actions in 4Q 2015 reflected Moody's expectation that the financial cushions for issuers in the oil and commodities industries have been or will be undermined significantly in the face of a protracted structural downturn and that their vulnerability to continued depressed markets is increasing.

There were nine defaulters in 2015, resulting in a high-yield Asian corporate default rate of 6.4% at end-2015.