Some Asian corporates seen to default in 2012

Rated Asia Pacific (ex-Japan) non-financial corporates showed no defaults in 2011 compared to 2 in 2010; what’s the score in 2012?

Moody's Investors Service says that its Credit Transition Model (CTM) indicates that the High Yield default rate for its Asia Pacific (ex-Japan) rated non-financial corporate portfolio will rise to just over 2% in 2012, representing an uptrend after a cyclical bottom of zero defaults in 2011.

" The estimated high yield default rate translates into 2 potential rated defaults this year,' says Clara Lau, a Moody's Group Credit Officer and the author of a Moody's special comment on default rates for the sector in 2012.

"The estimated Asian high yield corporate default trend is in line with the modestly negative rating trend as corporates are facing a more challenging operating environment as the anemic recovery in the US and the EU sovereign and financial crisis are expected to slow growth in Asia, including China," says Lau.

Furthermore, according to the report, credit availability will remain tight, given heightened risk aversion among investors and banks. In addition, banks in Europe must deleverage to meet regulatory capital
requirements, and banks in Asia -- after two years of rapid loan growth -- will constrain lending. As such, lowly rated high-yield credits will be more exposed to the constrained liquidity situation.

The Moody's high-yield default estimate for 2012 is based on the assumption of a widened average US high-yield rate at around 639bps in 2012. The Asia default estimate also incorporated an analytical
assumption that the GDP-weighted unemployment rate for key countries in the region will approximate last year's 3.5% level.

Looking back on 2011, rated Asia Pacific (ex-Japan) non-financial corporates showed no defaults in 2011 compared to 2 (total debt of USD 534 million) in 2010.

As a result, the trailing 12-month speculative default rate dropped to zero as of end-2011 from 3.4% at end-2010. It was the first time since 2007 that there were no rated corporate defaults in a year.