Moody's Investors Service said in a new report on Tuesday that slowing economic growth and continued trade tensions will keep credit conditions negative for non-financial companies in Asia (ex-Japan) in 2020, although the impact will vary by country and sector.
"The ongoing US-China trade tensions are weighing on business sentiment, industrial activity and investment decisions, and consequently also on GDP growth in key economies across the region," said Moody's Vice President and Senior Credit Officer Wan Hee Yoo.
"The slowdown in GDP growth coupled with companies' investment needs will also stall deleveraging for our rated companies," he added.
Moody's said most rated companies will maintain strong access to funding, although funding conditions will tighten for weaker companies, widening the gap in credit quality.
In India, weakening profitability and high capital spending will prevent a meaningful improvement in credit profiles of most rated companies. Utility companies benefit from availability-based revenue or long-term take-or-pay offtake contracts, which limit the impact of slowing growth.
"We expect India's GDP growth to increase to 6.6 per cent in 2020 after falling to 5.6 per cent in 2019 from 7.4 per cent in 2018. But growth will remain lower than in the recent past," said Moody's in the research publication.
Credit conditions will be negative because of weak growth, lacklustre profitability and elevated capital spending. However, infrastructure companies will remain resilient.
Moody's said the government's stimulus measures to revive economy may not immediately improve credit conditions. Tight funding conditions will slow demand for consumer goods and banks will be selective in extending funding to companies.
At the same time, volatile commodity prices and narrow product spreads will constrain earnings. Weak profitability and elevated capital spending will prevent meaningful improvement in credit profiles.
Most infrastructure issuers will maintain stable credit quality, given their long-term contracts with availability-linked revenue where they get paid in full regardless of product demand as long as they can deliver the full contracted product or service. Infrastructure issuers have established market positions.
Moody's currently maintains stable outlooks for the China property, Asia Pacific telecom and Asia Pacific power sector. However, its outlook for the Asian steel sector is negative amid soft steel demand and narrow product spreads.
Across Moody's portfolio, 77 per cent of rated companies have stable outlooks, down from 84 per cent about a year ago, with a meaningful increase in negative outlooks in India, South Korea and Indonesia.
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