Moody's says Asia Pacific credit trend to keep improving

Global economic recovery, China's economic condition, inflation and appreciation of Asian currencies used as key factors.

Moody's Investors Service says that it expects the corporate credit trend for Asia and Australia to continue to improve for the rest of 2010 -- as positive trends emerged in 1Q2010 -- while downward ratings pressure on Japanese companies will ease.

"Although the proportion of negative rating outlooks of the rated corporate portfolio for Asia remained higher than pre-crisis levels at 28% at end-1Q 2010, it has been gradually decreasing for 2 quarters," says Clara Lau, a Moody's Group Credit Officer. Lau was speaking on the release of Moody's latest report -- which she authored -- on 1Q2010 corporate credit trends for non-financial corporates in the region, according to a Moody's release.

"In addition to the recovery in the global economy, key to the outlook for Moody's corporate portfolio for Asia Pacific is the impact of the health of the Chinese economy, rising inflation and the appreciation of Asian currencies on corporate operating margins," says Lau. "Other factors central to the outlook are the pace of acquisitions and increases in capital expenditure."

In 1Q2010, the number of negative rating actions for the region ex-Japan continued to trend downwards to 10 from 11 at end-2009, so reaching a 2-year low.

Australian utilities accounted for 3 of the 10 negative actions due to weak financial metrics at their previous rating levels and the low likelihood of a restoration of their weakened credit profiles during their expected rating horizons.

During the quarter, there were 8 positive rating actions, all in Asia, and driven by improved financial and operating profiles, or demonstrated financial resiliency and strong ability to manage through the cycle.

"In addition, diversity is apparent between sectors; for example, while a negative rating trend emerged in the retail sector, the ratings of automotive manufacturers and property developers showed positive trends. By contrast, the Indonesian telecoms sector showed a mixed trend due to company-specific reasons," says Lau.

In the case of Japan, while negative rating actions -- which totaled 8 -- continued to dominate, positive actions emerged for the first time since 3Q2008. A third of the negative actions in 1Q2010 in Japan concerned real estate companies due to high leverage and weaker-than-expected performances amid a weak rental market. As a result, the percentage of Japan's rated corporates with stable outlooks declined further to 60% from 64%, while that with negative rating implications rose to 38% from 35%.

However, the rating trend is expected to stabilise progressively in 2Q2010, driven by improved external environment, business restructurings and successful recapitalisation initiatives. Such a trend has been observed among integrated and consumer electronics issuers.