New Delhi [India], March 6 : In a recent report released by Moody's, a stark warning has been issued regarding the escalating risks facing Asia-Pacific nonfinancial corporates.
The report highlights a concerning trend in credit outlooks, indicating a notable increase in risks for these entities.
According to the report, by the end of 2023, the share of ratings with a stable outlook in the Asia-Pacific corporate portfolio had declined significantly, plummeting from 83 per cent at the end of 2022 to a mere 68 per cent.
This decrease is accompanied by a substantial rise in the share of ratings with negative implications, which surged from 13 per cent to 29 per cent over the same period.
One of the most alarming statistics revealed in the report is the 12-month trailing high-yield corporate default rate, which stood at 8.0 per cent at the end of 2023.
While this rate represents a decrease from the previous year, with 12 defaults recorded compared to 24 in 2022, the severity of the defaults is not to be underestimated.
Notably, two-thirds of the defaults in 2023 were classified as distressed exchanges, signaling significant financial distress among corporations.
The report further underscores that the majority of defaults occurred in the second half of the year, with Chinese property developers bearing the brunt of the financial turmoil.
More than half of the defaulters hailed from this sector.
While Moody's expects a slight decrease in defaults from Chinese property developers in the coming year, the lingering credit risks persist, casting a shadow over the outlook for 2024.
In addition to the defaults, the report highlights other concerning trends, including 23 multi-notch downgrades, three rising stars, and nine fallen angels in 2023.
These shifts in credit ratings underscore the volatility and uncertainty prevailing in the Asia-Pacific corporate landscape.
Furthermore, Moody's points out that the negative trend in credit outlooks was predominantly driven by Chinese corporates, a consequence of rating actions related to the downgrade of China's sovereign rating to negative.
However, the report offers a glimmer of stability for Japan, Australia, and New Zealand, where the rating trend remains relatively stable.
By industry, the report reveals that more than half of the ratings of rated Local Government Financing Vehicles (LGFVs) and property developers had negative implications at the end of 2023, further exacerbating concerns about the financial health of these sectors.
With escalating risks, increasing defaults, and volatile credit ratings, the road ahead appears fraught with uncertainties, underscoring the importance of proactive risk management and strategic decision-making for corporations operating in the region.
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