Beijing, March 19, 2013 -- Moody's Investors Service says that credit trends for Chinese corporates
are likely to stabilize in 2013 because of the improvement in the domestic
economy and the continuation of a benign liquidity environment.
"We expect to take fewer negative rating actions on Chinese companies
in 2013 than in 2012, as the revenues and earnings of most firms
will recover. This view is based on expectations for gradual improvements
in the fundamentals of some industry sectors, against the backdrop
of our central macroeconomic scenario," says Kai Hu,
a Moody's Vice President and Senior Analyst.
According to the report, Moody's central macroeconomic scenario
now forecasts GDP growth for China at the current level of 7.5%-8.5%
in 2013, up by 0.5 percentage point from our previous forecast,
and in the range of 7.0%-8.0% in 2014.
"In addition, the liquidity environment will, as indicated,
remain favorable, thereby supporting the refinancing and investment
needs of rated Chinese companies," he adds.
Hu was speaking on a just-released Moody's report titled,
"Chinese Corporate Credit Trends to Stabilize on Improving Economy."
He is the lead author of the report.
Increased state-directed investments in infrastructure and the
stabilization of the property market have boosted the economic recovery
in the Mainland and have helped offset weak growth in exports.
These two factors will remain the major drivers of growth in 2013,
directly benefiting companies in related sectors, such as property,
steel, building materials and construction.
Issuers in these sectors -- which faced the bulk of Moody's
negative rating actions on Chinese firms in 2012-- will see their
revenues and earnings recover from the lows in seen 2012.
The government's expansionary fiscal policies and its continued
efforts to expand urbanization will also fuel spending on infrastructure.
At the same time, Moody's expects property sales to grow in
single-digit percentage terms in China, as developers shift
towards mass-market housing to meet increasing demand.
Companies in the steel, building materials and construction sectors,
which derive a high proportion of their revenues from infrastructure projects
and property construction, will see a modest improvement in their
revenues and earnings in 2013, although their financials will remain
weak.
In addition, the increase in demand for construction-related
commodities, such as steel and cement, will alleviate the
pressure on selling prices and, in turn, lift the profit margins
of those issuers exposed to this segment. The recovery will,
however, be limited by lingering overcapacity problems in these
sectors.
Moody's also expects energy consumption in China to increase from
2012 levels, driven by the rebound in industrial output.
"The positive impact of the modest growth in property sales and
higher infrastructure investment will filter down to energy-related
industries, such as oil & gas, power utilities and mining,"
says Hu.
Furthermore, a steady increase in domestic consumption will support
sectors such as retail, consumer goods, TMT (telecom,
media and technology) and autos.
The report also notes that investment-grade companies --
mainly comprising state-owned enterprises -- will
continue to enjoy favorable access to the bank loans and capital markets,
while the refinancing risk for high-yield companies will remain
manageable through to 2016.
Nevertheless, many Chinese issuers share some broad risks in the
near-to-medium term. These include: (1) generally
weak liquidity management and asset-liability structures,
weak corporate governance, and low transparency; (2) challenges
and uncertainties associated with the reform and rebalancing of the Chinese
economy; and (3) shifts in the global competitiveness of Chinese
manufacturers as both wages and skills increase.
Subscribers can access the report at http://www.moodys.com/research/Chinese-Corporate-Credit-Trends-to-Stabilize-on-Improving-Economy--PBC_151487
NOTE TO JOURNALISTS ONLY: For more information, please call
one of our global press information hotlines: London +44-20-7772-5456,
New York +1-212-553-0376, Tokyo +813-5408-4110,
Hong Kong +852-3758-1350, Sydney +61-2-9270-8141,
Mexico City 001-888-779-5833, São Paulo
0800-891-2518, or Buenos Aires 0800-666-3506.
You can also email us at mediarelations@moodys.com or visit our
web site at www.moodys.com.
Kai Hu
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service (Beijing) Ltd.
10th Floor, International Financial Centre D
No. 156, Fuxingmen Nei Street
Beijing 100031
P.R. China
Telephone:+86-10 6319-6500
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service (Beijing) Ltd.
10th Floor, International Financial Centre C
No. 156, Fuxingmen Nei Street
Beijing 100031
P.R. China
Telephone:+86-10 6642 8968
Moody's: Credit trends of Chinese corporates to stabilize