The default rate for Asia-Pacific corporate entities in 2014 reached its lowest level since 2007, according to a report released on Thursday by credit rating agency Standard & Poor’s.
Four entities defaulted last year, affecting debt worth US$1.3 billion. The default rate for all rated entities in Asia-Pacific was 0.26 per cent, down from 0.42 per cent in 2013 and 0.29 per cent in 2012. The default rate for speculative-grade entities, those rated BB+ or lower, declined to 1.18 per cent in 2014 from 2.01 per cent in 2013 and 1.41 per cent in 2012.
S&P notes that ratings do not provide a complete guide to investment merit but speak to one aspect of an investment decision: credit quality. “Ratings continued to serve as effective indicators of relative credit risk in Asia-Pacific in 2014 – in line with global trends,” said the report.
The report noted a slight overall positive trend in 2014 ratings activity in the region. Of the 759 entities rated at the beginning of the year, 58 had improved their rating by year end, while 50 (excluding defaulters) had been downgraded. It was the first year since 2010 that upgrades exceeded downgrades.
No investment-grade entities defaulted in Asia-Pacific last year, a run that extends back to 2009. The region remains skewed toward investment-grade entities which made up 78 per cent of rated entities last year, compared with only 50 per cent globally. Among new issuers in Asia-Pacific, 59 per cent were assigned investment-grade ratings.
Indonesia-based PT Bumi Resources Tbk accounted for two of the recorded defaults in 2014. The enterprise’s initial S&P rating of BB, awarded in 2009, gradually declined in the lead up to its first default last year. It was raised to selective default status and then to CC as it completed a distressed exchange, but returned to default after failing to repay the principal on matured convertible bonds.