Asian Liquidity Stress Indicator (Asian LSI), measured by Moody’s, weakened to 32.7% in July from 30.9% in June 2018 and has now remained above the 12-month average of 27.9% for the fifth consecutive month.
The rating agency’s Asian LSI measures the percentage of high-yield companies with Moody's weakest speculative-grade liquidity score of SGL-4 as a proportion of high-yield corporate family ratings. The indicator increases when speculative-grade liquidity deteriorates.
In a note to clients on Monday (13 August), Moody’s said the Asian LSI increased to 32.7% in July from 30.9% in June, as the “number of issuers reliant on short term funding rose”, marking the sixth consecutive month that the indicator has weakened.
The North Asian sub-indicator weakened to 34.3% in July from 33.3% in June, with the Chinese high-yield sub-indicator weakening to 36.5% from 35.4% and the Chinese industrials sub-indicator weakening to 50.0% from 47.8%.
However, the Chinese property sub-indicator remained at 24.0%.
The liquidity stress sub-indicator for South and Southeast Asian high-yield companies weakened to 29.6% from 25.9% in June, and the Indonesian sub-indicator weakened to 23.3% from 17.2%.
High-yield issuance was weak in July at $1.3 billion -- similar to $1.5 billion in June -- with the proceeds from all deals used primarily for refinancing upcoming maturities.
Issuance for the first seven months of 2018 was $16.2 billion, well below the $25.1 billion raised over the same period last year.
The median interest rate on new issuance increased to 7.1% in 2018 from 6.25% in 2017, highlighting the difficult market conditions experienced by companies in 2018.
Moody's expects the default rate for Asian high-yield non-financial companies to be 1.9% at the end of 2018, compared with 4.3% at the end of 2017 with six defaulters.