Asia Pac: Debt refinancing risks look low

Debt refinancing risk looks low for Asia Pacific as the vast majority of the region's bonds are highly-rated and therefore better placed to withstand market volatility and stress, according to S&P, the global rating agency.

The ratings firm said the greatest source of refinancing risk includes high and rising corporate debt in China, rising interest rates, changes to trade or tax policy coming from the Trump Administration and the geopolitical situation regarding North Korea.

On a positive note, S&P said credit quality could strengthen in some sectors in the region, as commodity prices continue to rebound which would be especially helpful to Australian exporters.

“And, while strong credit growth in China contributed to its sovereign credit rating downgrade to 'A+' last month, the ratings agency predicts that the country will maintain its robust economic growth. said Diane Vazza, head of S&P global fixed income research.

“Continued steady growth from both Japan and Australia could reduce uncertainty in the coming years," she said.

The agency said that some US$1.1 trillion of Asia-Pacific corporate debt that it rates will mature from the second half of 2017 through 2022.

This represents 11 per cent of debt maturing globally.

Some US$110 billion is scheduled to mature in the second half of 2017.

This will rise to US$205 billion in 2018 and US$242 billion in 2019, before declining to US$227 billion in 2020.

Not much junk

In addition, the agency added, refinancing risk remains low as just 11 per cent of the total Asia-Pacific rated debt maturing through 2022 is junk-rated.

Of the US$1.1 trillion of Asia-Pacific rated financial and nonfinancial corporate debt set to mature between the second half of 2017 and 2022, the majority is from issuers in Australia, Japan, and China.

"Financial services companies account for 55 per cent of this Asia-Pacific debt, and 97 per cent of this debt is rated investment grade which should help temper the region's overall refinancing risk,” Vazza noted.

About $23.7 billion of Asia-Pacific debt rated 'B-' and lower will mature in the second half of 2017 through 2022, and the largest share of this is from Chinese issuers, particularly those from the homebuilder and real estate sector.

Companies in Australia, New Zealand, and Japan account for 64 per cent of the debt maturing through 2022, while companies in Asia (excluding Japan) account for the remaining 36 per cent.

“Companies from Japan, Australia, and New Zealand have $79 billion in rated corporate debt set to mature in the second half of 2017; however, we expect that some of this debt remaining in the second half of the year may already have been accommodated by the credit market, given normal data-reporting lags,” the S&P bond specialist added.

These maturities rise in 2018 to US$144 billion and to US$154 billion in 2019 before declining to US$137 billion and US$116 billion in 2020 and 2021, respectively.

Of this maturing debt in Japan, Australia, and New Zealand, 58 per cent is from the banks and insurers, which have a large proportion (30 per cent) of debt scheduled to mature through 2018.

In Asia (excluding Japan) the amount of rated corporate debt scheduled to mature in the second half of 2017 is US$30 billion, and the annual maturities are scheduled to increase to US$62 billion in 2018, US$89 billion in 2019, and rise to a high of US$90 billion in 2020.

Through 2022, about 51 per cent of the total debt is from nonfinancial companies.

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