Asian Companies in Nonfinancial Industries See Negative Ratings Trend

Downgrades and negative ratings for Asian nonfinancial businesses are set to continue in the near term, with Chinese companies in the property development and transportation industries dragging down the overall outlook.

Some 40% of Asian firms rated by Moody’s Investors Service and 31% of Moody’s-rated companies in Japan had ratings with negative implications in the third quarter, said Clara Lau, a Moody's Investors Service group credit officer. On the other hand, firms with stable outlooks were at 53% and 64%, respectively, the lowest levels since the first quarter of 2014.

In the Asia Pacific region, ratings for nonfinancial corporates have been trending negative, with 26 negative ratings versus 15 positive rating actions during the third quarter of 2016.

"By region, China remained the major driver of the negative actions, accounting for 12 of the 26 actions during 3Q 2016," said Lau. "And, by industry, companies in the property development, REIT and transportation sectors each accounted for four negative actions."

Businesses in construction and engineering, and metals and mining, saw the most pressure in the third quarter, with about 65% of rate issuers in these sectors showing ratings with negative implications, Moody’s said.

An exception to the sector trend was seen in Australia, where ratings for companies stayed mostly stable, as the portion of ratings with stable outlooks rose to 78% in the third quarter from 75% at the end of the second quarter, Moody’s analysts said.

– Nicholas Stern, editorial associate

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