Asia Pacific issuers take divergent tracks on recovery path: S&P
Dec 07, 2020
Melbourne [Australia], December 7 : As borrowers rebuild businesses and finances in 2021, the operating backdrop should improve with economies rebounding and COVID-19 vaccines coming online, S&P Global Ratings said on Monday.
This, however, will be a bifurcated recovery. "While we expect many issuers to bounce back by 2022, highly leveraged and weaker borrowers will continue to struggle," it said in a report titled 'Comebacks, Setbacks, And Divergent Tracks.'
There are green shoots in some sectors and geographies, said S&P Global Ratings credit analyst Terry Chan. "However, the credit quality of more cyclical sectors such as automotive, commodities and cyclical transport will not likely recover to pre-COVID-19 levels until 2023."
For the year to November 30, S&P took negative rating actions on 38 per cent of its issuer pool in the Asia Pacific. A total of 232 ratings actions in the Asia Pacific related to the effects of COVID-19 and sharp moves in oil prices.
"We still have a net 19 per cent of the issuer pool on negative outlook or credit watch negative, which implies a significant likelihood of downgrades or defaults in 2021," said Chan.
While financial conditions are generally favourable, they should remain difficult for deeply high-yield issuers due to risk aversion and the increased selectivity of domestic bank funding. The pace of job recovery to pre-Covid growth level will determine consumer sentiment and demand.
"We assume that Asia Pacific banks' COVID-related credit losses will rise by about 500 billion dollars by year-end 2021. The state of banks' asset quality will become clearer when lenders end their moratoriums on loan repayments and governments reduce fiscal support.
"Assuming the wide availability of COVID-19 vaccines by mid-2021, there should be a rebound in economic activity. Yet the timing would differ by geography based on each country's success in containing the pandemic," said S&P Global Ratings credit analyst Eunice Tan.
"The rate of ratings change has become much milder in recent months as much of the recovery has been factored into our views on sovereigns, banks, and corporations."
