Introduction
To date we have assigned a small number of recovery ratings in Asia Pacific. With the development of capital markets and the increase in private equity activity investment in the region, we expect the sub–investment grade syndicated loan market to expand and, with it, the demand for recovery ratings. As is the case globally, we will only publish recovery ratings when we have completed a report on the insolvency regime for the relevant country.
Mirroring global trends, recovery expectations are becoming increasingly important for investors in Asian debt markets. For many investors, recovery has historically been a secondary consideration in corporate credit. Several factors, however, are converging to encourage a more comprehensive analysis of recovery prospects: the requirements of Basel II and other risk-based capital-adequacy management regimes, as well as the prevalence of
collateralized debt obligations (CDO) and credit default swaps (CDS). More than ever, these factors are forcing investors to decompose credit into its key components—default and recovery.
Our recovery rating efforts have thus far been concentrated in Australia, where Standard & Poor's Ratings Services has started assigning recovery ratings to unsecured loan and bond issues of Australian speculative-grade-rated corporate issuers. Given the Australian corporate-rated universe is predominantly investment grade, only a handful of speculative-grade recovery ratings have been assigned so far. However, we expect more speculative-grade corporates to be publicly rated in the future, as reduced lending capacity in the banking sector drives bond market volumes. It is, therefore, timely to have an enhanced focus on recovery, because as we head down the credit curve to where the default probability is significantly higher, recovery becomes a more important part of the investment equation.
Unsecured recovery ratings are an extension of our existing recovery rating framework, which—until now—in Australia has been limited to secured bonds and loans. Likewise in Asia-Pacific, existing recovery ratings have been assigned to secured loans in Singapore and Hong Kong. We will begin assigning recovery ratings to unsecured debt in other Asia-Pacific countries following the completion of a review of the insolvency practices and securities laws as they relate to bankruptcies and voluntary workouts. In 2008, we expect to roll out unsecured recovery ratings in Singapore, Hong Kong, and Japan, and thereafter in other jurisdictions such as Korea, Malaysia, and Taiwan.
For more information contact:
Craig Parker: +61 (3) 9631 2073
