20 November 2014

Moody's says it's a stable outlook for non-financial corporates in Asia excluding Japan

Moody's Investors Service says its outlook on Asia's non-financial corporates (excluding Japan) remains stable, reflecting a modest improvement in external demand, led by the US, still-accommodative global monetary conditions, and an orderly economic rebalancing in China.

"Against a supportive macroeconomic backdrop, the majority of our rated Asian corporates will maintain sufficient liquidity and access to financing to manage their borrowing and refinancing needs," says Philipp Lotter, a Moody's Managing Director.

Lotter was speaking on the release of Moody's 2015 outlook for Asian non-financial corporates (ex-Japan), which reflects Moody's expectations for fundamental business conditions in the industry over the next 12 to 18 months.

According to Moody's, most industry and corporate outlooks are stable. Large industries including steel, telecommunications, utilities and refining have stable outlooks; only coal and Chinese property have negative outlooks.

"Rated entities can absorb the effects of rebalancing in China. Adequate liquidity, healthy access to bank funding, and market-oriented reforms will help most rated Chinese corporates absorb a measured slowdown in growth and weakness in the property market," says Gary Lau, a Moody's Managing Director.

"Moreover, we expect leverage to stabilise and cross-border refinancing needs to moderate. That said, weaker names in sectors such as property and mining will continue to face downward ratings pressure on the back of China's economic rebalancing away from investment and credit-led growth."

Moody's has changed its outlook on India's corporate sector to stable from negative. The firm said this is due to the expectation that economic recovery, enhanced access to global capital markets and successful implementation of pro-market policies will lead to improved corporate cash flows.

The outlook for Asian corporates could still turn negative if China's property market and real economy failed to stabilise, with headline growth falling below 6%, or if the normalisation in US monetary policy triggers a spike in regional borrowing costs and foreign-exchange volatility, leading to liquidity and refinancing concerns among Asian issuers.

Conversely, Moody's would consider a positive outlook if the successful passage of economic reforms across the region - notably in China, India and Indonesia - led to improved growth quality, market liberalisation and higher productivity, the company said.