Business

Saturday March 7, 2009

Uptick in corporate financing defaults

By LAALITHA HUNT


THE risk of corporate financing defaults is generally expected to be higher against the backdrop of a more difficult operating environment.

As an export-oriented economy, Malaysia is not immune to the slowing global trade as seen in the straight months of decline in exports and industrial productions.

Industry experts concur that an uptick in corporate defaults is likely as the feeble global economic conditions weaken companies’ finances and slash the cashflow available for debt repayments.

RAM Rating Services Bhd chief executive officer Liza Mohd Noor says there is already an emerging trend that overall corporate credit quality as measured by net rating activity, is turning negative (for the first time since 2004).

“Negative rating actions for weaker credit profiles are possible, particularly for companies in the more volatile sectors such as those in the export-oriented manufacturing, retail and hospitality sub-sectors,” says Liza.

Meanwhile, Malaysian Rating Corp Bhd head of fixed income Wan Murezani says some low investment grade issuers have had their ratings lowered, but the situation should be contained within those rated in the lower and speculative grade spectrums.

CIMB group deputy chief executive officer and treasurer Lee Kok Kwan says that over the past 12 months, the rating outlook of several corporate bonds were revised downwards from positive to stable and from stable to negative, indicating weaker expected financial performance.

“There have also been a few credit downgrades and default cases under the collateralised loan obligation (CLO) financing deals due to weaker operating cash flows,” Lee says.

In terms of sectors, bond issuers in the property and construction sectors have held back new launches on weak take-up rates.

Meanwhile, auto parts manufacturers affected by slower demand for luxury cars have also experienced specific default and credit downgrade cases, Lee notes.

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