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Asia-Pacific Credit Outlook Points To Slower Earnings

Feb 22, 2023, 01:53

Slowing economies and weakening demand are set to dominate corporate operations across much of Asia-Pacific in 2023.

Corporates face slower earnings amid a cocktail of high inflation, elevated costs, weak consumer demand, and increasing debt-funding costs. Despite this, however, we expect slight credit improvement overall in Asia-Pacific.

"Companies have focused on capital management to help alleviate credit pressures; and debt due for refinancing is lower this year than in 2024 and 2025," said S&P Global Ratings credit analyst Richard Timbs.

"Offshore funding will nevertheless remain a relatively expensive sticking point for many corporates," Mr. Timbs said.

Sector performance will be patchy. Australian oil and gas producers and metals and mining companies should experience continued elevated prices even if down from recent peaks. Chinese manufacturing may take longer to recover if global conditions affect demand in export-related sectors.

Indian airports are poised for strong performance on the back of healthy domestic traffic and a recovery in international traffic. Credit conditions for Japanese electric utilities will be tough as high fuel costs and a weaker yen affect cost lines.

South Korean utilities and technology companies face adverse market conditions, which pose risks to ratings. Conversely, Korean automobile makers and electric vehicle-related companies are likely to experience better operating conditions.

The outlook for real estate is bumpy amid higher interest rates. Lease and leverage profiles will determine susceptibility to rating changes.

Rating outlooks have nevertheless improved from last year. The bulk of ratings are stable. About 10% of the portfolio have a negative outlook compared with about 15% at the corresponding time last year.

Japan has the highest proportion of negative rating outlooks in the region: almost 25%. The sectors with the highest share of negative outlooks are healthcare; mining and minerals; and real estate.

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