After fostering the growth of an electronics manufacturing juggernaut across the mainland's coastal provinces over the past decade, Taiwan's biggest hi-tech firms now find their credit profiles at risk because of these cross-strait interests.
Strong reliance on mainland production facilities and local demand make the credit metrics, or management, of the island's leading hi-tech enterprises more volatile than those of their non-tech peers, according to analysts at Taiwan Ratings Corp (TRC), a partner of independent credit ratings agency Standard & Poor's.
Besides rising labour costs on the mainland, these hi-tech firms are challenged by 'global competition, shortening product and technology life cycles, and rapidly changing consumer preferences', credit analyst Raymond Hsu said yesterday.
About 48 per cent of Taiwan's top-100 companies by revenue are in the hi-tech industry, which comprises several sub-sectors such as semiconductor and contract electronics manufacturing.
This field was led last year by Hon Hai Precision Industry, the world's leading electronics manufacturing services provider, more widely known under its Foxconn Technology Group trade name.
'On average, [Taiwanese] hi-tech companies' median financial risk profile is in the low 'twA' category,' Hsu said. According to TRC, a twA rating means a company's financial obligation 'is somewhat more susceptible to adverse effects of changes in circumstances and economic conditions than higher-rated debt'. The highest long-term credit rating from TRC is 'twAAA'.
'Taiwan's top companies are performing better than they did a year ago, but a full recovery of their credit profiles to pre-recession levels is far from guaranteed, despite the global economy's gradual recovery,' credit analyst Daniel Hsiao said. These firms may experience weakening credit quality in the next two years if they adopt aggressive growth strategies without stable financial metrics.