The Nation



Refinancing not a problem for debt-issuers: Moody's

MOST NON-FINANCIAL corporate debt issuers in Asia-Pacific excluding Japan can successfully refinance the US$378 billion of domestic and cross-border bonds maturing over the next four years, given the ability and willingness of investors to lend to them, according to Moody's Investors Service.

"Approximately 88 per cent of bonds that we rate maturing between now and 2017 is for investment-grade firms. These companies typically have access to a variety of funding sources, including the domestic and international capital markets. We therefore do not expect such firms to have difficulty refinancing their debt," said Joe Morrison, a vice president and senior analyst.

About 66 per cent of the maturities represent domestic bonds. Asian companies generally have better access to the more stable domestic capital markets than to cross-border markets. For this reason, the rating agency believes that refinancing in the domestic markets will be more assured than in the US dollar market.

The corporate issuers' four-year maturities to 2017 have increased by 20 per cent from last year's $314 billion. The annual maturities will peak at $108 billion in 2014 and fall thereafter, averaging $85 billion a year from 2015-17.

Chinese and Korean corporate debt issuers account for roughly 80 per cent of the region's total bond maturities through 2017. China accounts for 45 per cent of the debt coming due in Asia over the next four years. Of that, 76 per cent was issued domestically, and 97 per cent of these domestically issued bonds were by investment-grade companies, nearly all of them state owned.

South Korea accounts for 35 per cent of total Asian maturities through 2017. Of this percentage, investment-grade companies account for almost all or 99 per cent, and domestic bonds represent 72 per cent of total maturities.

According to Standard & Poor's Ratings Services, Asia-Pacific financial institutions may face more hurdles in 2014 as pressure on the economic front is likely to bear down on their asset quality.

Although it sees GDP growth in the Asia-Pacific region moderately improving to 5.4 per cent from 5.3 per cent in 2013, growth prospects in emerging countries have weakened.

Asia-Pacific financial institutions are now more exposed to local and regional risks than external risks. In S&P's view, the following stand out as potential risks - high private-sector indebtedness in many Asian countries, meagre economic outcomes from the region's policies, a disorderly market reaction to the US tapering off its quantitative easing and the euro-zone debt problem.

"We hold the view that China's slower growth could have spill-over effects on other countries such as Australia, Indonesia, Taiwan, Korea and Hong Kong," credit analyst Naoko Nemoto said.

"Sluggish economic conditions, combined with a high level of corporate and household debt in some major economies, will stress banks' asset quality. The credit profiles of banks in Malaysia and Thailand are vulnerable to deterioration in the health of their respective household segments due to the rapid growth of household debt," she said.

Generally, S&P expects credit costs to rise. But it is unlikely to see a sharp increase hurting banks' capitalisation, said Nemoto, assuming the region will benefit from a gradual global economic recovery under S&P's base-case scenario.

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