Wed, Dec 31, 2008 - Page 12 News List

Company ratings face downturn pressure

PAIN The TRC made 11 rating downgrades against five upgrades this year, the first negative trend in six years. Its top rater, however, said that most firms would survive

By Crystal Hsu  /  STAFF REPORTER

With the global financial turmoil eroding Taiwan’s economy and corporate profits, firms’ ratings have been downgraded this year, bringing an end to six years of upward ratings, a local rating firm said yesterday.

Taiwan Ratings Corporation (TRC, 中華信評), a local arm of Standard & Poor’s, told a teleconference yesterday morning that the company had lowered its forecast for Taiwan’s GDP growth to 0.5 percent next year, prompted by the nation’s worse-than-expected economic performance amid the financial crisis.

Daniel Hsiao (蕭黎明), director of TRC’s corporate fund ratings, said the nation’s key economic pointers suffered rapid and drastic declines in the second half and could continue downwards in the coming months.

“Export orders and industrial output are particularly disappointing,” Hsiao said, adding that the two indicators dropped 28.51 percent and 28.35 percent respectively last month.

Altogether, the TRC made 11 rating downgrades against five upgrades this year, the first negative trend in six years. The drop was led by the financial sector and parts of the high-tech sector.

Chief ratings officer Dan Fukutomi said, however, that most Taiwanese firms would survive the crisis.

“The majority of large corporations and financial institutions in Taiwan have the financial means to withstand this unprecedented downturn,” Fukutomi said. “However, we expect negative rating trends will continue into 2009 as Taiwanese entities confront ongoing pressures on profitability, asset quality and capitalization.”

Echoing the theme, Hsiao said 17 percent of his company’s clients in the non-financial sectors risked outlook downgrades next year, up from 10 percent at the end of last year.

Hsiao put his clients’ chances of being downgraded at 30 percent, adding that the trend could persist for six to 24 months.

“Export-oriented firms such as liquid-crystal-display and memory chip makers as well as shipping liners are bearing the brunt of the [crisis] on shrinking demand,” Hsiao said. “Their ratings could be lowered if their capitalization or profitability figures deteriorate,” he said.

By contrast, Hsiao said, firms in the construction sector fared better on stable rental incomes. Hsiao referred to Cathay Real Estate Development Co (國泰建設), saying the nation’s second-largest developer appeared to have been little affected by the financial crisis, mostly because of its strong capitalization and conservative investment strategy.

The TRC has 47 manufacturing clients and 86 financial customers.

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