"The deterioration in March was again largely the result of weakening liquidity profiles, particularly of Chinese corporates and more specifically of Chinese property developers. More than one in four of the high-yield Chinese property companies we rate is considered to have weak liquidity," says Laura Acres, a Moody's Vice President and Senior Credit Officer.
"Overall liquidity in Asia remains strong relative to the high point of 37% in the fourth quarter of 2008, the peak of the global financial crisis. However, it is now at the highest level since October 2010 and there have been four months of consecutive, marked erosion," adds Acres.
The Asian LSI measures the percentage of companies with the lowest speculative-grade liquidity score (SGL-4), and increases when corporate liquidity appears to deteriorate.
Liquidity in Asia is generally weaker than in other regions, partly because its debt capital markets aren't as mature as those in some other regions, and because they rely more on local bank markets for funding.
"The number of net new issuers in the index rose by one in March. This was a function of two new ratings, of Indonesian home builder Alam Sutera Realty Tbk (B2, stable) and Mongolian Mining Corp (B1, stable), and the withdrawal of the ratings of Daqing Dairies.
"At the same time, the total amount of rated debt outstanding in March increased slightly, to $43.5 billion from $40.4 billion in February, as a result of new issuances," says Acres.
Looking ahead, Moody's expects markets in Asia to remain uncertain, due to ongoing concerns about the euro area sovereign debt crisis and a more general economic slowdown, which has made investors more cautious.
However, the market has reopened, with most deals being oversubscribed and the two new deals; Mongolia Mining Corp was the first corporate rated deal out of Mongolia, while Alam Sutera was one of the lowest-rated first time issuers in the region to raise US dollars.
Moody's expects more high-yield debt deals to flow through in the coming weeks and months.
Moody's expects that $4.2 billion of bonds from rated issuers (including domestic and cross-border bonds and convertibles) will fall due this year and that much of this will need to be refinanced. Some US$871 million of the total US$4.2 billion of debt is to be refinanced by six issuers rated
B3 and below: to date no Asian issuer has successfully raised a US$ bond while at this rating level or below.
The monthly index looks at looks at liquidity trends throughout the Asia-Pacific region (excluding Japan and Australia) for the speculative-grade companies Moody's rates, and quantifies the proportion of companies with weak liquidity.
The report is entitled Moody's Asian Liquidity Stress Index. It can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_141052.