Defaults in the Asia-Pacific will hit a record this year, surpassing the levels set during the financial crisis a decade ago, as the global recession pounds the export-driven region, Standard & Poor's said on Thursday. The forecast reinforces expectations that the worst of the pain from the global economy has yet to filter through Asian corporate debt issuers, especially among the lower rated companies with less available access to funding.
S&P said nine Asia-Pacific rated issuers have defaulted so far this year according to its criteria, already matching the nine defaults seen for the entire year of 1998 that marked the credit agency's worst annual year in terms of number of defaults. More defaults are expected given that the number of rating cuts has exceeded upgrades in the region for 10 consecutive months, according to S&P.
"We expect record levels of defaults in the coming months as the global recession continues to take a heavy toll on the region's export-led economies and leveraged sectors, with ripple effects on capital spending and consumer expenditures," S&P said in its report. The forecast comes even as Asian companies came into the year with less debt levels than their Western counterparts, according to S&P. However, the region has suffered from "severe" disruptions to exports that are hurting profitability especially in the manufacturing and other cyclical sectors, the agency said.
Analysts have been warning about rising defaults among the region's high-yield issuers, which have not benefited from the surge in local and foreign-currency debt sales so far this year among higher-rated issuers. Lower-rated issuers also face a tougher hurdle in obtaining credit from banks. Among the S&P defaults this year, four were from China: semiconductor firm ASAT Holdings, aluminium firm Asia Aluminium, commercial forestry firm Mandra Forestry Finance and property firm Neo-China Land Group.