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December 26, 2007 |
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* Moody's Says Negative Australian Corporate Trend to Persist Moody's Investors Service says Australian corporates in 2007 showed a clear negative credit trend -- driven by M&A activities and the resultant aggressive use of debt -- and this situation is likely to persist into 2008. At present, 20% of the Australian/New Zealand portfolio are either on review for downgrade or on negative outlook, compared to 6% with positive indications. "Due to the fallout from the US sub-prime crisis, Australian rated companies -- when compared with Asian corporates -- face more exposures as they, as well as the banking sector, are more reliant on capital market funding," says Clara Lau, a Moody's SVP and Chief Credit Officer. The report reviews credit conditions throughout Asia Pacific (ex-Japan) in 2007 and the outlook for 2008. Going into 2008, the disruption in the cross border debt markets caused by the sub-prime crisis and the contagion effects on the rest of the capital markets, including equity markets, will remain a major concern, the report says in reference to Australia and the Asia Pacific region overall. Liquidity management remains a key credit risk and will need to be monitored closely. "At present, most Australian banks and corporates -- in this context -- do not seem to have major issues rolling over CPs, though at higher costs; but potential challenges are anticipated if the sub-prime situation worsens," says Lau. Moreover, an economic slowdown in the US, depending on its severity, could, at a minimum, affect issuers that generate revenue from the US, like technology and trading companies, some Australian consumer products companies and listed property trusts, the report says. "In comparison to the relative balance and stability noted in Moody's Asian portfolio, Australian non-financial rated corporates displayed a clear negative trend in 2007," says Lau, adding, "Negative rating actions dominated positive rating actions by a factor of four." The negative trend in Austalia was mainly driven by M&A activities, and mostly felt in the utilities and metals and mining sectors. |
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