‘Fallen Angel’ Risk High for Asia Corporate Bonds, Fitch Says

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Asia-Pacific corporate bonds are now at higher risk of becoming so-called fallen angels -- falling to junk status -- due to the coronavirus pandemic, according to Fitch Ratings.

Seventeen of the 36 issuers that Fitch rates BBB-, the lowest investment-grade level, now have low headroom for their ratings, Fitch said in a report. This includes 14 such issuers with a Negative Outlook or Rating Watch Negative status.

The pandemic has led to ratings cuts on almost a quarter of publicly graded corporate issuers in the region, but only one has fallen to sub-investment grade, Fitch said.

“Many companies and countries will continue to face difficult conditions in the near term as the coronavirus pandemic evolves,” analysts including Matt Jamieson said in the report. India will play a prominent role in whether many of these will become fallen angels, as seven are government-related issuers whose ratings are tied to the country’s, the analysts said.

The group of 17, which has collectively issued about $117 billion in debt, also includes three companies with a stable outlook, including South Korea’s LG Electronics Inc.

“Our base-case expectation for these three issuers is that they will stay clear of their negative rating sensitivities,” Fitch said. “But their margin of safety is limited.”

©2020 Bloomberg L.P.

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