Moody's sees negative trend for Asia Pacific corporates through 2007

Moody's Investors Service predicted that the negative credit trend that emerged last year for non-financial corporates in Asia Pacific (ex-Japan) will continue throughout 2007.

"Looking ahead, even though the situation is broadly stable - some 76% of issuers show stable outlooks - the trend is mildly negative and will stay negative for 2007," Clara Lau, chief Moody's credit officer for corporates in the region, said in an agency release.

"Moody's data shows that ratings with negative outlooks outstrip those with positive outlooks. As of the start of 2007, 11% of issuers had negative outlooks against 8% with positive."

Australian corporates account for an overwhelming majority of the region's credits now on review for downgrade, the agency said, primarily because of strong merger and acquisition activities. If these Australian corporates are excluded, the number of Asian credits on review for downgrade slightly exceeds those on review for upgrade at about 3% to 1%.

Despite the low risk of ongoing interest rate hikes and continued strong liquidity, Moody's said it expects a continuation of the mildly negative trend due to a continuation of the merger and acquisition activity and ambitious investments that were the major triggers for last year's downgrades; the heavy reliance on short-term financing among high-yield credits, particularly Chinese and Indonesian corporates; and ongoing regulatory risk in certain sectors, such as with Chinese property developers.

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