Outlook for Most APAC Corporates is Stable, says Fitch

Fitch says that most corporate sectors in Asia Pacific, and the majority (87%) of its portfolio of 252 rated corporate entities, are on a stable outlook for 2015.

However, the credit ratings agency (CRA) added that six out of 28 corporate sectors have negative sector outlooks: Chinese department stores, Hong Kong commercial and retail property, Singapore hospitality real estate investment trusts (REITs), and the Indian, Chinese and south-east Asian oil/gas sectors.

Fitch’s newly-published ‘2015 Outlook for APAC Corporates’ compiles key aspects from 28 separate sector outlook reports published over the past four weeks. The report also highlights historical and forecast movements in net debt, earnings before interest, tax, depreciation, amortisation and rent/restructuring costs (EBITDAR) and net leverage for the 10 largest APAC corporate sectors.

Overall net leverage for the portfolio of 252 corporates is forecast to improve slightly to 1.75x in 2015 from 1.78x in 2014, thanks to lower projected net debt – particularly in the technology sector – and higher projected EBITDAR – notably in the real estate/homebuilding sector.

Fitch distinguishes between the outlook for sectors as a whole and for its universe of rated entities within a sector. Of the 28 published reports, six have negative overall sector outlooks but only one of these, Chinese department stores, also has a negative rating outlook.

Fitch’s three oil/gas 2015 outlook reports all have negative sector outlooks, as the dramatic fall in the price of crude oil during the fourth quarter of 2014 has negatively impacted upstream related operations including exploration and production (E&P), drilling, and oilfield services. However, the lower crude oil price is also clearly positive for many APAC corporate sectors which utilise oil and gas products.

Chinese homebuilder ratings and the overall real estate sector is on stable outlook for 2015. However Fitch does not expect a significant rebound from 2014’s trough. It expects sector consolidation and polarisation to continue, with smaller and weaker homebuilders struggling or exiting the market, whilst larger ones with fast asset turnover and healthy liquidity will continue to perform well.

The report also provides a summary of the positive and negative sensitivities that could trigger a rating change for all publicly rated corporates in APAC currently on a negative or positive outlook. Currently the ratings of 18 corporates across a range of sectors are on negative outlook, and conversely the ratings of four corporates in the homebuilding and technology, media and telecommunication (TMT) sectors are on positive outlook.

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