With markets freezing up amid the global credit crisis, companies in the Asia-Pacific region are facing strengthening headwinds in financing and will see continued pressure on margins as macro-economic fundamentals deteriorate, Moody’s Investors Service said yesterday.
Moreover, there is no imminent likelihood of improvement in the negative corporate credit trends for many of the rated companies across this region, the international ratings agency said in a report released yesterday.
“Looking ahead, access to funding will remain challenging, especially for low investment grade and speculative grade firms as already tight market liquidity is further aggravated by the financial turmoil in the US,” Clara Lau (劉惠萍), chief credit officer for the Moody’s regional corporate finance group, wrote in the report, titled “3Q08 Asia-Pacific (ex-Japan) Corporate Credit Trends.”
Moody’s extended negative rating actions on 17 companies in this region, excluding Japan, in the third quarter — mostly real estate and technology firms — with positive rating actions on only two companies over the same period, the report said.
In comparison, Moody’s issued negative ratings in the second quarter on 18 rated companies in the Asia-Pacific region, but no upward revisions.
“Behind many of the negative rating actions in 3Q 2008 were weakening financial profiles and liquidity, due to tougher operating conditions,” Lau wrote in the report.
The Hong Kong-based analyst said rising production costs owing to elevated inflation and a fall in consumer and industry demand amid slowing economic growth — regionally and globally — had adversely affected the rated companies’ operating performances and credit metrics in the third quarter.
By contrast, in the second quarter negative actions were mainly the result of “a preponderance of debt-funded deals,” she said.
According to the ratings agency’s review, technology, shipping and property firms in the Asia-Pacific region will most likely fall victim to the global economic slowdown and continued credit crunch in the months ahead as Asia’s export-oriented economies continue to struggle amid a deepening global economic slowdown.
The credit positions of regional retailers are also weakening, the report said.
Moody’s said that liquidity and access to liquidity have been a key rating focus in the region since the third quarter.
This is particularly the case following a spate of negative developments in the US financial sector such as the nationalization of both Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers Holdings Inc, the Bank of America Corp’s purchase of Merrill Lynch & Co and the US government’s takeover of American International Group Inc.
Moody’s said in the report it would pay particular attention to lending conditions in Australia and South Korea, “since their banking systems are more reliant on wholesale/capital market funding given their high loan to deposit ratios.”
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