Asia credit may turn negative

Asia credit may turn negative

Hongkong: An increase in the number of negative rating outlooks for Asian companies in the current quarter may indicate that the region’s credit trend is turning negative in 2008, Moody’s Investors Service said on Thursday .

“While the subprime-triggered credit turmoil that began in North America this summer has not gripped the region in a significant way, signs of disruption in the relative stability of Asian corporates began to emerge in the fourth quarter," said Clara Lau, Moody’s chief credit officer in Hong Kong, in a report on Asia-Pacific countries, excluding Japan.

She said three factors will determine the direction of the region’s credit ratings in 2008: the protracted disruption of global credit markets, the severity of any economic slowdown in the US, and regulatory risks in emerging markets such as China and India. “As such, going forward, credit profiles in the region may weaken somewhat," Lau added.

Any downturn in the US would hurt companies that generate revenue from there, including technology and trading firms, some Australian consumer products companies and listed property trusts, Lau’s report said.

In China, the ratings of property developers are among the most exposed, according to the report, given the government’s persistent efforts to contain overheating in the sector.

In Asia, specific company issues such as aggressive expansion and imprudent financial management were the main cause of negative ratings in 2007, although positive ratings from firms with improved credit fundamentals left overall credit quality stable. By contrast, Australian companies displayed a clear negative rating trend as negative rating actions outpaced positive actions by a factor of four to one due to active mergers and acquisitions.