Asia's corporate quality continues to improve, says S&P

By Reshmi Basu

New York, April 7 - Standard & Poor's said corporate quality in Asia continues to improve following the aftermath of the region's financial crisis in 1997.

The default rate dropped to zero in 2004 from 7.2% in 1998, according to the rating agency's first default and ratings transition study on Asia, which excludes Japan. No defaults were recorded for rated issuers.

S&P said that improvements in general economic conditions, financial restructuring by many issuers, and a rise in investment-grade ratings contributed to the improvement in overall default rates. The ratings agency also found that investment-grade issuer ratings amounted to 51.5% of all ratings in Asia, compared with 31.4% five years ago.

When compared with S&P's global default database, the study shows ratings in Asia tend to shift more often and are more volatile than the global average. The frequency of annual rating changes between 1991 and 2004 averaged 31.4% while the global average for that period is 27.5%.

"This can be partially explained by the impact of the regional financial crisis and the volatility embedded in the statistical limitations of a smaller pool of issuers and a more compressed period of study," noted S&P in the report.

"It also indicates that the Asia ex-Japan pool is located in a more volatile economic and political environment than the pool for the global study."

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