Asian defaults at record lows, says S

Mumbai, Mar 14 (UNI) Default rates among non-Japanese Asian companies are at a record low of just 0.28 per cent as at end-2005, stated a report released today by Standard and Poor's Ratings Services.

While only one rated Asian company defaulted in 2005, none defaulted in 2004, pointed out the report.

Titled ''Annual 2005 Asia Corporate Default Study And Rating Transitions'', the report says that the default rate among rated Asian companies (including banks and insurers) stood at 0.28 per cent at the end of 2005 as compared to 0.6 per cent globally.

Corporate defaults in Asia peaked at 7.32 per cent in 1998, at the height of the Asian financial crisis.

''At the moment there is plenty of good news supporting the market,'' said Standard and Poor's Asia Corporates and Infrastructure managing director John Bailey, adding ''economic conditions are strong and corporate profitability is growing.'' Debt issuance is likely to be strong as capital expenditure needs, refinancing requirements, and merger and acquisition activity drives primary bond issuance.

But despite the good news, there are some clouds on the horizon.

''There is a nagging fear that a recent surge in low-grade issuance could lead to a gradual increase in default rates over the long term,'' said Standard and Poor's Asia-Pacific region director and credit officer Terry Chan.

''Increased issuance in the 'BB' to 'B' rating categories is usually a harbinger of future defaults,'' he added.

Pointing to the trend of rising interest rates, Mr Bailey said ''there is a growing perception that this could also take its toll on the market. Consequently, a higher incidence of default is likely in 2007.'' ''In other words, the Asian default cycle is lagging a year behind the corresponding rise in default in the US expected in 2006,'' he said.

UNI JJ MAZ AW1706