Corporate Asia May Struggle with Rate Rise
Corporate Asia has taken advantage of ultra-low interest rates over the past few years, loading up on debt, but with rates set to rise, there may be risks ahead.
“With the U.S. Federal Reserve expected to begin normalization of policy early next year, so too will begin the end of a prolonged downtrend in borrowing costs for corporates,” ANZ said in a note last week. “Corporate Asia — [which] has benefitted significantly from the abundance of liquidity in this low interest rate environment — is not entirely immune.”
In addition, some companies may face risks from currency and duration mismatches, ANZ said.
Some signs of stress in Asia’s high-yield segment have already begun to emerge. The high-yield default rate for Asia-Pacific companies rose to 4.1 percent at the end of July from 2.2 percent at the end of 2013, according to a report from Moody’s last week.
“We maintain a mildly negative credit outlook for Asian corporates in view of slowing regional growth and continued tight liquidity,” Moody’s said.
Standard & Poor’s estimates around $212 billion of rated financial and nonfinancial corporate debt will mature in emerging Asia from the second half of 2014 through the end of 2019.
Source: CNBC
