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NEWS UPDATES Asean Affairs                             6  September 2011

Liquidity up in Asian companies

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The Asian Liquidity Stress Index, a monthly gauge prepared by Moody's Investors Service, fell to a record low in August, with just 9.7 percent, or some 10 names, of its rated speculative-grade portfolio, demonstrating inadequate liquidity.

"The index, which declines when corporate liquidity increases, has been between 11 percent and 13 percent since the start of the year, and was at 11.4% in July," said Laura Acres, the international rating agency's vice-president and senior credit officer.

"At the same time, the August improvement was issuer-specific, rather than a broad improvement across the high-yield spectrum," she added.

The Asian Liquidity Stress Index, which Moody's publishes each month, examines liquidity trends throughout the Asia-Pacific (excluding Japan and Australia) for the 103 speculative-grade companies that it rates, and quantifies the proportion of companies with inadequate liquidity.

At present, the total amount of rated debt outstanding was around US$49.3bil.

While the high level of corporate liquidity in Asia continued to suggest a low probability of default for the region's speculative-grade companies, Moody's said it believed that speculative-grade companies could face higher costs, and weaker ones could find access to credit increasingly limited if investors, particularly those outside the region, decided that it was too risky to lend to low-rated companies.

Moody's noted that investors were increasingly concerned about the fallout from problems some European sovereigns were facing, and fears there could be another global recession.

"With Asia-Pacific (ex-Japan) trailing 12-month speculative-grade default rate, we expect it could fall further in the third quarter of this year to as little as 0.38%, but there is a risk that it could rise if there is a material change in banking-system stress due to the ongoing European sovereign debt crisis or adverse developments for specific issuers," Acres said.


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