Moody's: Asian corporate high-yield default rate will remain moderate in 2016, despite rise in 1Q2016

Moody's Investors Service says that the default rate for Asian high-yield corporates will stay at a moderate level for 2016, despite Moody's slightly upward revision of the forecast default rate for the year to 4.2% from an earlier estimate of 3.2%.

The change in the forecast reflects the slight weakening in the credit quality of Moody's speculative grade portfolio during 1Q2016, and the 4.2% translates to six potential defaulters for the year.

"Companies in the metals & mining sector face a higher risk of default," says Clara Lau, a Moody's Group Credit Officer. "The protracted weakness of commodities prices globally has eroded the profitability of the mining companies and weakened their credit profiles."

 

"We believe that the oversupply in the commodities sector reflects a structural shift in the industry rather than a cyclical downturn; the credit profiles of mining corporates will therefore continue to come under stress", adds Lau.

Moody's report points out that the trailing 12-month Asian high-yield corporate default rate ended 1Q 2016 at 7.0%, a slight increase from the 6.5% seen at end-2015. The increase reflected one additional default in 1Q 2016, resulting in a total of 10 defaulters for the period.

Six of the 10 defaulters were metal and mining and related issuers. Metals and mining companies and related service providers continued to come under tremendous pressure in 1Q 2016, due to oversupply issues and weak demand in the commodities sector.

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