Moody's Investors Service says that its Asian Liquidity Stress Index (Asian LSI) rose for the fourth consecutive month in October and now stands at 29.1%, up 5.3% from September, its largest monthly increase ever reflecting the net addition of six companies to the lowest speculative-grade liquidity score category (SGL-4).
"The index is also at its highest level since the second quarter of 2009 and now totals 30 companies in the lowest speculative-grade liquidity score category (SGL-4)," says Laura Acres, a Moody's Senior Vice President.
Acres was speaking on the release of Moody's latest report on the index, entitled "Asian Liquidity Stress Index." In a related development, Moody's will publish in November a report saying refinancing risk for Chinese high-yield companies to 2014 is manageable.
"The Asian LSI, which increases when speculative-grade liquidity appears to decrease, is creeping close to the high of 37% recorded in the fourth quarter of 2008, the height of the global financial crisis," says Acres.
However, the climate today is quite different from 2008 as companies continue to raise funds, frequently at the last minute, from a currently vibrant USD funding market and from domestic markets for refinancing purposes.
Moreover, the diversity of funding choices has broadened. Chinese corporates in particular have demonstrated access to a still liquid domestic funding market, including trust loans, bank lending and a growing domestic bond market to help manage their refinancing pressures. Accordingly, expected defaults, although likely to rise, remain relatively low.
Nevertheless, downside risks clearly remain. Not only is the Asian LSI at its current high level but a very clear negative bias for ratings outlooks remains. The percentage of speculative-grade companies with a negative outlook, or on review for downgrade was 36.9% at end-October, down slightly from 37.6% at end-September.
The net amount of high-yield debt Moody's rates in Asia rose again in October and now totals $42.7bn versus $41.5bn at end-September.
Four deals closed in October, including: Longfor Properties Company Limited's $400mn 7-year bond; Lippo Karawaci Tbk's (B1 positive) $100mn senior notes due 2019; Yuzhou Properties Company Ltd's $250mn senior notes due 2017; and China South City Holdings Ltd's (B1 stable) $125mn senior unsecured notes.