Liquidity in Asia generally weaker: Moody’s

Asia’s debt capital markets aren’t as mature, says Moody’s, and companies rely more on local bank markets for funding.

Moody's Investors Service said:

Asian speculative-grade corporate liquidity stress levels increased in December from November’s historically low level, but liquidity remains healthy. The Asian Liquidity Stress Index, which rises when liquidity appears to decrease, ticked up to 9.3% in December from 9% in November.

The index remains below the 2011 high of 13% recorded in January and is well below the 37% reading posted during the fourth quarter of 2008 at the height of the global financial crisis. The increase reflects a decrease in the number of rated companies rather than a deterioration of corporate liquidity.

The speculative-grade default rate rose to 1.56% during the fourth quarter of 2011 after falling to zero during the third quarter. The default rate is likely to continue increasing in 2012 as weaker companies struggle to refinance pending maturities at rates they can afford.

The total amount of rated speculative-grade debt outstanding in December was $47.8 billion, down from $49.2 billion in November. The decline reflects the difficulty speculative-grade companies are having accessing bond markets as investors remain concerned about the potential for a global economic slowdown and the ripple effects of the European debt crisis. Issuers are instead turning to domestic and regional bank lenders to raise funds.

Liquidity in Asia is generally weaker than in other regions, partly because its debt capital markets aren’t as mature and because companies rely more on local bank markets for funding. Relationship banking, which rolls over short-term and uncommitted lines of credit rather than providing committed funding, is far more common in Asia than elsewhere.

This was illustrated during the global financial crisis, when companies with extremely high levels of short-term debt rolled over credit lines, and this has continued over the past few months while bond issuance has dried up.