Moody's: Lower default rate for Apac high-yield non-financial firms

A vial of Covid-19 vaccine Vero Cell from Sinopharm. - Xinhua

KUALA LUMPUR: Moody’s Investors Service forecasts an economic recovery in the US and China, and continued supportive policy, will bring a decline in Asia-Pacific (Apac) high-yield non-financial corporate default rates.

In its report on Monday, the rating agency also highlighted that renewed restrictions amid a resurgence in coronavirus cases across Apac could delaybusiness recovery and weaken companies' liquidity.

Moody’s forecasts in a new report that the trailing 12-month default rate for Asia-Pacific high-yield non-financial companies will fall to 3.6% at the end of 2021, from 7.4% at the end of 2020.

“The lower default rate forecast incorporates our expectation of continued economic rebound in the US and China, aided by supportive fiscal and monetary policies and accelerated vaccine rollouts,” says Clara Lau, a Moody’s senior vice president and group credit officer.

“Still, the speed and strength of recovery will diverge across Apac, depending on the progressof countries’ vaccine rollouts and containment of infections.

“The renewed lockdowns in countries undergoing a resurgence in infections will hinder business activity and corporate earnings recovery, which could squeeze the liquidity of weaker companies,” Lau added.

However, she also pointed out supportive policies over the near term will keep borrowing costs low, with major central banks maintaining low policy rates, asset purchases and lending programs before reaching their fullemployment and inflation targets.

And while the Chinese government has become more selective in providing support to distressed state-owned enterprises (SOEs), market liquidity will remain sufficient and most of Moody's rated issuers will retain access to the funding markets, although financially weaker ones will face greater refinancing uncertainty.

There was one rated default in the second quarter of the year, bringing the total number of rated defaults for the first half of 2021 to four and the trailing 12-month default rate for Asia-Pacific high-yield non financial companies to 5.7% at end-June 2021.

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