APAC Corporate and infrastructure entities facing growing credit differentiation In 2021: S&P

February 9, 2021

SINGAPORE - A report released today by global ratings agency Standard and Poor's discusses the pace at which the corporate sector in China, Japan, Indonesia, India, and Australia and New Zealand is likely to recover from the COVID-19 pandemic. The report includes a list of credit trends on the radar of S&P Global Ratings analysts in 2021, including demand recovery, funding conditions, and financial discipline.

"Significant downside risk persists for the credit quality of Asian companies, with negative rating outlooks on nearly 25% of the investment-grade and about one-third of the speculative grade companies we rate in region," said S&P Global Ratings credit analyst, Xavier Jean.

Issuers rated 'BBB-' and above were investment grade, and those at 'BB+' and belowwere speculative grade, he said.

While the proportion of ratings on negative outlook ws broadly stable compared with six months ago, the report points to growing recovery differentiation across the region.

"Profits and credit quality of companies rated in China, India, and Pacific are recovering about six months faster than we earlier anticipated, with reducing downside risk to ratings. Indonesian companies, on the other hand, are unlikely to recover until the second half of 2022," Jean said.

Lingering refinancing risk existed for weaker Indonesian companies in the commodities, real estate, transportation, retailing, and State-owned sectors.

"The pace of rating downgrades has slowed over the past three months, under S&P Global Ratings assumption of a gradual recovery of key macroeconomic indicators and profits for companies rated in Asia-Pacific in 2021," he said.

"We project better profits and credit metrics for nearly nine out of 10 rated companies in Asia-Pacific in 2021 over 2020. (But) we estimate that nearly 40% of credit ratings or outlooks could face renewed downside risk if profits stall in 2021 and the recovery is postponed by another year."  

Braking profit growth would likely trigger most downside risk for investment-grade issuers in China, Japan, and Australia operating in the commodities, real estate, automobile and machinery, and transportation sectors, and for issuers in the 'B' rating category facing refinancing risk, the report said.

And access to funding was likely to remain a major credit differentiator in Asia-Pacific throughout 2021.

"Some funding green shoots are appearing for smaller, more leveraged issuers, notably in China and Indonesia--albeit at much higher cost and sometimes shorter tenors," Jean said. "The fund-raising window could be short-lived, however. Investors are likely to stay edgy until they have more confidence on the sustainability of profit recovery post vaccine roll-out.

"Funding from domestic banks is also likely to remain selective throughout the region as debt moratoria have ended or are set to end in Malaysia, China, Thailand, Indonesia, or India through 2022."

www.standardandpoors.com (ATI).