Asia-Pac corporate defaults close to peaking

KUALA LUMPUR: Moody's Investors Service says the rising default rate for rated non-finance corporates in Asia-Pacific (ex-Japan) is likely to persist in the short term and then peak in the last three months of 2009.

"The rising default rate is expected to continue, but now looks near its top with the Asian speculative grade trailing 12-month non-finance
corporate default rate estimated to peak at 18%-20% in 4Q2009," according to Moody's group credit officer/corporate ratings Asia Pacific Clara Lau on Aug 26.

"Subsequently, the rate is expected to fall sharply to around 10% in 2Q2010, while it was -- as of end-July -- 16%, well above the 2.7% for all of 2008," she said.

Lau also said the estimated high-yield corporate default peak would be one of the highest, if not the highest for Asia-Pacific's rated non-finance corporate portfolio since we began tracking this in Asia in the early 1990s.

"The estimate reflects the severity of the current global downturn and the fact that the rating mix has changed dramatically with proportionally more lower-rated high-yield corporate issuers in the region's portfolio," she added.

Lau was speaking on the release of a Moody's report -- which she authored -- on projecting the default trend for rated non-finance high-yield corporates in Asia-Pacific (ex-Japan).

The report looks at trends evident since the Asian financial crisis in 1997, discusses the acceleration in corporate default rates and examines the application of Moody's Credit Transition Model, a formal default forecasting model, to Asia.

Since the start of 2009 to end-July, there were 10 rated non-finance corporate defaults (totaling US$3.3 billion in debt), five times the number for all of 2008.

All the defaulters were speculative-grade issuers and the overwhelming majority was B-rated or below one year prior to their default. Medium-sized listed Hong Kong companies with predominantly Chinese operations accounted for the majority of these defaults.