Moody's: Corporate credit trend in Asia negative due to slower China growth

Moody's Investors Service expects the credit trend for non-financial corporates in Asia Pacific including Australia and Japan to remain broadly stable for the rest of 2015, with a negative bias for corporates exposed to China's slowing economy.

"Demand growth in China has moderated; putting pressure on the operating margins and/or cashflow of some non-financial corporates in Asia Pacific, especially those in consolidating industries such as metals and mining, and cyclical industries such as property, and oil exploration and refining," says Clara Lau, a Moody's Group Credit Officer.

"On the other hand, adequate liquidity in China's credit markets, as well as the sustained recovery of the US economy will partially offset the negative impact on corporates exposed to China's GDP slowdown," adds Lau.

Moody's report points out that the overall credit trend for non-financial corporates in Asia Pacific was negative in 2014, mainly due to Chinese issuers. A total of 68 negative rating actions were taken during the year versus 26 positive actions.

The number of negative rating actions for corporates in Asia Pacific increased notably in 4Q 2014, with 20 negative and four positive actions. By contrast, there were 15 negative actions versus six positive actions in 3Q 2014.

Moody's report says that 72% of its corporate ratings in Asia Pacific carry stable outlooks and 22% with negative implications (including negative outlooks and ratings on review for downgrade) at end-2014.

However, the share of Asia (ex-Japan and Australia) corporate ratings with stable outlooks fell to 67% at end-2014 from 71% at end-2013, while the share of ratings with negative implications increased to 24% from 21% over the same period.

On Australian corporates, the share of Australian corporate ratings carrying stable outlooks was at 84% at end-2014, slightly exceeding the 81% recorded at end-2013, while the share of ratings with negative implications remained the same, at 16% for end-2014 and end-2013.

As for Japan, the share of stable outlooks for Japanese corporate increased to 79% at end-2014 from 69% at end-2013, while the share of ratings with negative implications fell by almost half to 18% at end-2014 versus 31% at end-2013.

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