Slight improvement in credit quality in South, South East Asian companies: S&P
27 Mar 2006
Credit quality of rated companies in South and Southeast Asia has improved slightly in the past six months as regional economies and fuel-dependent industries gained modest relief from relatively stable crude oil prices. This was revealed in a commentary, Industry Report Card: South And Southeast Asian Corporates, published today by Standard & Poor's Ratings Services.
"We expect the outlook to remain generally stable in the next six months, supported by improvement in regional economies and corporate financial performance," said Standard & Poor's credit analyst Greg Pau. "Nevertheless, near-term liquidity risk continues to affect companies that have limited access to financial resources," Pau adds. These companies also face the challenges of rising costs and increasing competition.
Most of the 18 upgrades during that period resulted from Standard & Poor's criteria revision on foreign currency ratings above sovereign; certain non-sovereign entities that are considered well insulated from direct and indirect sovereign risks may achieve a foreign currency rating that exceeds the sovereign foreign currency rating.
There were two downgrades and they reflected deterioration of the companies' financial profile due to heightened refinancing risks. These include the lowering of our corporate credit rating on Malaysia-based Megasteel Sdn. Bhd. to 'SD' from 'B+'. Megasteel is the first company since 2003 to receive a selective default rating.
Debt capital markets in South and Southeast Asia remained active. Standard & Poor's rated six new corporate bond issues totaling $2 billion.
"The market is expected to stay favorable in 2006, with U S dollar interest rates likely to be peaking and liquidity remaining relatively strong," Pau notes. Bond issues from Indonesian and other regional issuers, including the $1 billion MTN programme announced by India's NTPC Ltd., indicate prospects for new issuance could remain strong in the short to medium term.
However, companies in the commodity and resources industries could be less active in 2006. This is because commodity prices (apart from oil and oil products) have softened since mid-2005 and most of the funding for capacity expansion in the South and Southeast Asia was already sourced last year. As such, new bond issues are likely to be driven by acquisition and refinancing activities.