Monday, 01 March 2021

Fitch: Liquidity continues to drive APAC corporates downgrades

Fitch Ratings' first quarterly APAC Corporate Rating Action Heat Map illustrates that downgrades exceeded upgrades by 2.8 times, and that weakening liquidity continues to be a key driver behind rating downgrades.

Of the rating downgrades in the first three months of 2020, more than a third was driven by the weakening of financial liquidity, albeit lower than the nearly 50% share of negative rating actions during 2019.

The heat maps in the new quarterly report identify graphically the fundamental reasons behind Fitch’s rating downgrades and upgrades out of 12 possible key factors, both in the most recent quarter as well as the previous 12 months.

The 12 possible key factors are: governance, capex, mergers & acquisitions/divestments, changes to target capital structure, changes to business strategy, sector-wide market changes, change in market position versus competitors, regulatory developments, liquidity, working capital, parental strength & linkage and change in criteria.

Changes to leverage or coverage ratios are deliberately not included as one of the 12 possible factors, as the purpose of Fitch’s heat maps is to display the fundamental reason behind the change in credit quality.

Based on the high amount of downgrades taking place in April 2020 for COVID-19-related reasons, the next second quarter 2020 edition of Fitch’s APAC Corporate Rating Action Heat Map is set to portray a significant further rise in downgrade activity.

The proportion of Fitch's publicly rated APAC Corporate portfolio on negative outlook or watch has risen to 14% by the end of first quarter of 2020 from 11% at the end of fourth quarter of 2019 and 9% at the end of first quarter of 2019.

Re-disseminated by The Asian Banker

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