Coronavirus May Add to Liquidity Strain for Some APAC Corporates


Monday, February 10, 2020   /11:14 AM  / By Fitch Ratings / Header Image Credit:  Bizlive


The Wuhan coronavirus epidemic will have a negative impact on operations and cause disruption for several corporate sectors both within and beyond China, says Fitch Ratings. Some companies may face liquidity strains as a result, especially those issuers with weak credit profiles and high refinancing needs in the near term, notwithstanding measures taken by the Chinese authorities to ease access to channels of financing.


We do not expect the credit profiles of the vast majority of rated corporates in Asia-Pacific (APAC) to be significantly impaired if the impact from the virus is short-lived. However, more corporate issuers may face rating pressures if the epidemic is not sufficiently contained by end-1Q20.


The potential inability of Chinese corporates to refinance maturing local and cross-border debt remains a risk, and this risk will escalate the longer the health crisis continues. The government has announced various measures - including liquidity support - for corporates affected by the epidemic. It has also asked banks to roll over/extend loans to corporates with debt/bonds maturing, and intends to set up "green channels" to help Chinese firms replace their maturing bonds with fresh issuance. However, it is possible some weak companies may still face difficulties, especially those that were already struggling prior to the outbreak of the virus.


For APAC corporates in general, Fitch views the sectors most exposed to the crisis as airlines, tourism/hospitality, gaming, non-food retail, energy and metals & mining. Specifically within China, Fitch expects all corporate sectors characterised by Chinese consumers mixing in public spaces to be affected so long as the crisis continues. This includes traditional retail, tourism, transport, and hospitality. In addition, industries reliant on migrant workers - such as construction and autos - will be constrained, as they face an exodus of employees unlikely to return until the virus is well and truly contained.

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China's homebuilding sector will remain a key investor focus, particularly as such firms account for almost 40% of the cross-border bonds issued by Chinese corporates maturing over February to December 2020. We believe that the impact on housing sales will be limited if the epidemic is short-lived, given that January and February are typically the slow season for new home sales and construction. However, the effects on the sector will be more substantial should the epidemic not be contained by April. Smaller, highly leveraged, homebuilders might be challenged in terms of liquidity, and may need to resort to repaying offshore debt using onshore financing. Large and medium-sized homebuilders typically refinance offshore maturities well before they are due, and would therefore be less likely to be affected by any disruption in offshore financing.


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