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Enoch Yiu

One of the world's leading credit insurers is considering putting Hong Kong on its watch list due to a dramatic increase in the number of local companies defaulting on payments.

International leading credit insurer Coface Group yesterday announced it was placing Britain, Germany, Hong Kong, Mexico and Portgual on rating watch with negative implications, suggesting a possible downgrade in their payment ratings.

A Coface rating gauges the average default risk of a company in a particular country based on its political and economic prospects.

A downgrade for Hong Kong would indicate there was a higher risk local companies would be unable to pay outstanding bills owed to buyers on time.

Britain, Hong Kong, Germany, and Portugal have an A1 rating - the highest possible rating - while Mexico is rated A4.

Coface put the Taiwan and the United States on watch with negative implications earlier this year.

Richard Burton, regional general manager of Coface, said the placement of Hong Kong on the watch list was mainly due to global economic uncertainties.

He said the Hong Kong economy was heavily reliant on its export sector, which depended on strong trade links with the US.

A decrease in external demand, particularly from the US this year, would cause a substantial slowdown in Hong Kong, he said.

'Hong Kong is an export-oriented economy so that a global economic downturn would hit many local companies,' he said.

'This has led to an increasing trend of defaults,' he said.

According to a payment survey by Frontline Business Information, a subsidiary of Coface Group, an increasing number of Hong Kong companies faced possible defaults on payments by both overseas and local buyers.

From March to August, 39.74 per cent of the companies surveyed did not receive payment from their buyers on time, compared with 31.53 per cent in the previous six-month period.

'From the survey result, 65 per cent of respondents believed that the late payment trend would increase in their industries in the next six months,' Mr Burton said.

From the same survey, it showed the US, Hong Kong and China were the most common countries of origin for late-payment debtors.

In the six months from March to August, 38.91 per cent of the companies surveyed said default debtors were from the US, 34.91 per cent from Hong Kong, and 33.09 per cent from Britain.

The survey allowed respondents to choose more than one country.

Mr Burton said the global economy had slowed in the first half of this year, while the terrorist attacks in the US would deepen the recession.

This would lead to an increasing trend of defaults.

However, he said the situations would improve in the first half of next year, as the low interest-rate environment and the US economic bailout package would boost the US economy, which would benefit Hong Kong and other countries. He also said Hong Kong had a large reserve and a low level of foreign debt, which would allow the SAR to recover from the recession soon.

In addition, China is on track for strong growth of 7 per cent this year, which would help to offset the negative factors faced by the SAR.

'With China joining the World Trade Organisation soon, Hong Kong is going to have a lot of new business opportunities due to its close ties with China,' he said.

Graphic: debt13gbz



SAR on watch list after survey finds default risk