" The estimated high yield default rate translates into 2 potential rated defaults this year,' says Clara Lau, a Moody's Group Credit Officer and the author of a Moody's special comment on default rates for the sector in 2012.
"The estimated Asian high yield corporate default trend is in line with the modestly negative rating trend as corporates are facing a more challenging operating environment as the anemic recovery in the US and the EU sovereign and financial crisis are expected to slow growth in Asia, including China," says Lau.
Furthermore, according to the report, credit availability will remain tight, given heightened risk aversion among investors and banks. In addition, banks in Europe must deleverage to meet regulatory capital requirements, and banks in Asia -- after two years of rapid loan growth
-- will constrain lending. As such, lowly rated high-yield credits will be more exposed to the constrained liquidity situation.
The Moody's high-yield default estimate for 2012 is based on the assumption of a widened average US high-yield rate at around 639bps in 2012. The Asia default estimate also incorporated an analytical assumption that the GDP-weighted unemployment rate for key countries in the region will approximate last year's 3.5% level.
Looking back on 2011, rated Asia Pacific (ex-Japan) non-financial corporates showed no defaults in 2011 compared to 2 (total debt of USD534 million) in 2010.
As a result, the trailing 12-month speculative default rate dropped to zero as of end-2011 from 3.4% at end-2010. It was the first time since2007 that there were no rated corporate defaults in a year.
The report is entitled, Default Rates for Asian Non-Financial Corporates to Rise in 2012 Amidst Global Economic and Credit Market Uncertainty. It can be found at www.moodys.com