Moody's: Asia Companies Not Facing Liquidity Issues

Moody's Investors Service says that while significant volatility has occurred in credit markets recently, no indications have emerged of rated corporates in Asia Pacific (ex-Japan) experiencing systemic problems in accessing lending in the wake of the US sub-prime crisis.

"Furthermore, Moody's has reviewed its rated portfolio for the region and concluded that broadly it faces no imminent challenges if the cross-border bond market remains, as it is now, essentially shut," according to a new report. The just-released report is authored by Brian Cahill, Moody's MD for Corporate Finance in Asia Pacific, and Clara Lau, a Senior VP and Chief Credit Officer, and is entitled "Asia Pacific Corporates Well Positioned for Liquidity Strain; Some Challenges Evident." "Traditionally, regional companies have relied more heavily on the banking system for funding than their counterparts in other parts of the world," Cahill says, adding, "Crucially, Asia's banks are generally showing no reluctance to lend to corporates in the current environment." As the sub-prime exposures of Asian banks are low relative to earnings and capital, their capacity to lend has not been really affected. Furthermore - except in Australia - Asia's banks are amply deposit funded rather than capital market funded, and so are less exposed to the wholesale funding turmoil. "At the same time, some large domestic bond markets, such as those in Korea, continue to function normally as a funding source for domestic companies," says Cahill. "Another relevant issue is the fact that high-yield issuers -- which are most exposed to any flight-to-quality risk in Asia -- only recently became active again in the region and many had taken advantage of, until recent, easy lending conditions to pre-fund their capital expenditure and financing needs," says Lau. "As such, many do not face any refinancing risk in coming months." "In this context, Moody's believes that any emergent liquidity challenges will be company -- and not sector -- specific," explains Lau, adding, "For example, weak operating fundamentals, low ratings and large near-term debt maturities at a particular corporate may result in large near-term refinancing risk." "Until recently, such companies might have hoped to use the cross-border market to address this risk, but this market -- as indicated -- has now essentially shut down," adds Lau. In this regard, some rating actions have already occurred -- for example, G Steel in Thailand and Magnachip in Korea. Further rating actions are possible in coming weeks, if the cross-border bond market remains shut, or returns but is materially more risk adverse. However, Moody's does not see -- in the current situation -- any risk of a large number of rating actions for the Asian corporate sector.