www.moodys.com
Moody’s Global
Credit Policy
Special Comment
August 2009
Table of Contents:
Summary
1
Data and Methodology
2
Issuer Characteristics
3
Trends in Credit Quality: Transition Matrices
and Rating Changes
6
Historical Corporate Defaults
8
Cumulative Default Rates
10
Regional Differences in Rating Transitions
and Cumulative Default Rates
12
Rating Performance Measures
14
Recovery Rates in Default
15
Credit Loss Rates
15
Moody’s Related Research
17
Appendix I
18
Appendix II
22
Appendix III
26
Appendix IV
27
Default and Recovery Rates of
Asia-Pacific Corporate Bond
and Loan Issuers, Excluding
Japan, 1990-H1 2009
Summary
This report is Moody’s third study of Asia-Pacific (ex-Japan) corporate bond and
loan issuers and their historical credit performance, migration, default, and
recovery experience. Broad conclusions include the following:
„
The Asia-Pacific component of Moody’s-rated corporate universe grew
rapidly over the past 19 years, from 68 rated bond and loan issuers at
the end of 1990 to 356 issuers at the end of the first half of 2009. The
speculative-grade share of these issuers also increased during this time
period, from virtually zero in 1990 to over 20% at the end of the first half
of 2009.
„
On average, default rates by rating category in the Asia-Pacific region
are broadly similar to their global counterparts. The rating distributions
of these two groups differ significantly, however, with the Asia-Pacific
region having a greater share of higher-rated corporate bond and loan
issuers. As a result, when aggregating across all rated issuers, overall
historical default rates are slightly lower in the Asia-Pacific region than
globally.
„
After several years of no default experience, defaults picked up in 2008
and the first half of 2009. There were 11 rated and 3 unrated defaults
during 2008-H1 2009, affecting a total of $3.1bn of debt. Historically, the
majority of the region’s defaults took place during the Asian financial
crisis of 1997-2001. Indonesia accounted for the largest number of
defaults and Korea had the largest default volume.
Analyst Contacts:
New York
212.553.1911
Elena Duggar
Analyst
Kenneth Emery
Senior Vice President
Daniel Gates
Team Managing Director
Hong Kong
852.2916.1133
Clara Lau
Group Credit Officer – Asia Pacific
Sydney
61.2.9270.8100
Brian Cahill
Managing Director – Asia Pacific
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
„
The Asia-Pacific region has experienced similar average recovery rates on defaulted debt to the global
averages. However, this result is based on a relatively small sample of available Asia-Pacific loan and
bond recoveries.
„
Rating accuracy as measured by the cumulative accuracy profile is modestly higher for credits in the AsiaPacific region than for the global aggregates. Rating volatility as measured by frequency of all rating
actions indicates that Asia-Pacific ratings have less stability than their global counterparts.
Data and Methodology
This report is Moody’s third detailed examination of the credit and default experience of Asia-Pacific (exJapan) corporate bond and loan issuers. 1 The study examines the rating histories and default experience of
671 Asia-Pacific corporate issuers which have had Moody’s-rated local and/or foreign currency debt
outstanding within the 1990-H1 2009 period. 2 Although Moody’s has rated corporate issuers in the Asia-Pacific
region as early as 1950, the report focuses on the modern era of corporate bond and loan issuance in this
region, 1990 to present. 3
The basic unit of study in this report is the corporate bond or loan issuer’s individual rating history. Moody’s
issuer ratings provide a rank-ordering of firms’ credit risks, which generally does not vary with either the size or
number of bonds that a firm may have outstanding. Additionally, in most cases, when an issuer defaults on
one of its bonds or loans, it defaults on all of them. Therefore, Moody’s normally reports its default statistics on
an “issuer-weighted” basis, i.e. the fraction of issuers that default, rather than on an “issue-” or “volumeweighted” basis. Furthermore, to the extent that historical default experience is predictive of future experience,
issuer-weighted statistics are likely to provide the most reliable guide to future default experience. If instead we
were to weight our statistics by the number of debt issues or their par amounts, we would place undue
emphasis on the particular historical experiences of a few large or very frequent issuers of corporate bonds.
For the purpose of this study, corporate bond ratings on either domestic- or foreign-currency denominated
debt are considered. We exclude any debt that was backed by a guarantor outside the corporate family (e.g. a
bond insurance company). 4 We also exclude sovereign and sub-sovereign debt issuers.
The data for this study is from Moody’s global default database which covers defaults by both Moody’s rated
and unrated issuers worldwide. Moody’s has compiled this information using a variety of sources, including
various print and online publishing sources, press releases, press clippings, internal memoranda, and records
of analysts’ contact with rated issuers.
Moody’s definition of default includes three types of default events:
1
2
3
4
2
„
A missed or delayed disbursement of interest or principal payment;
„
Bankruptcy filing or legal receivership by the issuer;
„
A distressed exchange whereby: (i) an issuer offers creditors a new or restructured debt, or a new
package of securities, cash or assets, that amount to a diminished financial obligation relative to the
original obligation and (ii) the exchange has the effect of allowing the issuer to avoid a bankruptcy or
payment default.
Japan is excluded from the analysis because the rating transition and default experience of issuers in Japan differs markedly from that of issuers from other
regions. The relatively low incidence of Moody’s-rated defaults in Japan is quite striking. Only two Japanese corporate issuers rated by Moody’s – Mycal
Corporation and New City Residence Investment Corporation – have defaulted on their bonds since 1990. This extraordinarily low incidence of default on
rated bonds can be explained by two factors: (1) higher credit quality since access to the bond market by speculative-grade companies is very limited in
Japan compared to other countries; and (2) systemic support from, amongst others, bank lenders and the government for companies facing financial
distress, which has averted many bond defaults.
This study focuses on issuers which have had Moody’s-rated debt outstanding during the period of study. In addition, Moody’s also has issuer ratings or
corporate family ratings on issuers which either did not have Moody’s-rated debt at any time during the 1990-H1 2009 period or had only national scale
ratings.
We begin our study in 1990 due to the relatively small number of rated issuers before this date. However, prior to 1990, two significant defaults occurred in
this region, both in New Zealand by issuers with initial ratings of Aa3 – DFC Financial (Overseas) Ltd. and DFC Overseas Investment Ltd.
When available, an issuer’s senior unsecured rating is used as the indicator of the credit quality. In the absence of such a rating, Moody’s infers an
equivalent senior unsecured rating from the issuer’s other rated debt obligations.
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
This definition is intended to capture events that change the relationship between the debt-holder and debt
issuer from the relationship which was originally contracted, and which subject the debt-holder to an economic
loss. We seek to identify only those economic losses that are the result of a credit event. Technical defaults
(covenant violations, etc.) are not included in Moody’s definition of default. 5
For the purposes of this study, we measure recovery rates on defaulted bonds and loans using market bid
prices quoted one month after default. Price data are derived from various market sources, including
Bloomberg, Reuters and Interactive Data Corporation. For the sake of consistency, the volume figures for loan
and bond issuers in different countries have been converted to US dollars from their respective local
currencies at the prevailing exchange rates at the time of default.
Issuer Characteristics
Fueled by rapid regional economic growth during the 1980s and a decline in bank lending capacity in the
1990s, an increasing number of Asia-Pacific corporations issued debt in domestic and international bond
markets and obtained Moody’s credit ratings. At the end of 1990, there were 68 Moody’s-rated loan and bond
issuers in the Asia-Pacific region that excluded Japan. This number has increased dramatically since then,
reaching 356 issuers by the end of the first half of 2009 (see Exhibit 1). Despite the Asian economic crisis that
hit the financial markets in 1997-98, the growth of Moody’s-rated corporate loan and bond issuance has
continued, although at a slower pace in recent years.
As the rated debt market has grown during the past two decades, so has the share of the speculative-grade
portion of the market. The vast majority of the issuers in the Asia-Pacific region were rated investment grade in
1990, while by the end of the first half of 2009 the share of speculative-grade issuers was 21%. In 1998, at the
height of the Asian financial crisis, the speculative-grade share of the market reached a peak of 42%. Many of
those speculative-grade issuers defaulted during the crisis, which brought the share down to its present level,
still much higher than the share at the beginning of the sample period.
Exhibit 1: Growth of Moody’s-Rated Issuers in the Asia-Pacific Bond and Loan
Market (excluding Japan)
Number of Rated Issuers
400
350
300
250
200
150
100
50
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1990
0
Year
Speculative grade
Investment grade
Exhibit 2 presents information on the industry composition of Asia-Pacific issuers as of the first half of 2009.
The majority of issuers fall into three broad industry categories: industrial sector (43.3%), financial sector
(42.1%) and public utilities and transportation companies (14.6%).
5
3
It is important to note that economic losses suffered by debt-holders due to changes in market conditions and/or market prices are not considered defaults
as long as the terms of the obligation are being met. Additionally, missed payments which are cured within the contractually-specified grace period are not
considered a default.
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Exhibit 2: Distribution of Asia-Pacific (ex-Japan) Corporate Issuers by Broad
Sector as of June 2009
Broad Industry
Number of Issuers
Share
Banking
122
34.3%
Finance
10
2.8%
Industrial
154
43.3%
Insurance
5
1.4%
Other non-bank
8
2.2%
Public utility
30
8.4%
Real estate finance
3
0.8%
Securities
2
0.6%
Transportation
22
6.2%
356
100.0%
Total
Exhibit 3 presents the domiciles of Moody’s-rated Asia-Pacific corporate issuers. Approximately one-third of
Asia-Pacific domiciled issuers that currently have rated debt outstanding are located in Australia. Other
countries with a significant share include Hong Kong, Singapore and Korea. Indonesia previously had a large
presence in this market, but many of its issuers defaulted during the Asian financial crisis of 1997-1998.
Exhibit 3: Distribution of Asia-Pacific (ex-Japan) Corporate Issuers by
Country of Domicile as of June 2009
Country of Domicile
Number of Issuers
Share
Australia
123
34.6%
China
12
3.4%
Hong Kong
46
12.9%
India
14
3.9%
Indonesia
20
5.6%
Korea
40
11.2%
Malaysia
18
5.1%
Mongolia
2
0.6%
New Zealand
24
6.7%
Pakistan
1
0.3%
Philippines
6
1.7%
Singapore
40
11.2%
Taiwan
3
0.8%
Thailand
7
2.0%
356
100%
Total
Exhibit 4 shows the rating distribution of Asia-Pacific issuers and changes in the rating distribution over time.
In 1990, 98.5% of the issuers were rated investment grade. However, the investment-grade share of issuers
has decreased to 78.9% at June 30, 2009. And, within the investment-grade and speculative-grade sectors,
the average rating has drifted downward. Much of the decline in average credit quality can be explained by the
increase in the number of non-financial corporates relative to financial corporates in the overall rated
population and the increased access of lower-rated issuers to the international bond and loan markets.
4
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Exhibit 4: Distribution of Period-End Asia-Pacific (ex-Japan) Corporate
Issuers by Whole Letter Rating (number of issuers and percent of total)
Year
1990
1995
2000
2005
H1 2009
Aaa
11
7
7
12
10
Aa
38
30
30
53
64
A
13
61
61
121
123
5
29
29
82
84
Ba
0
9
9
26
26
B
1
3
3
21
28
Caa-C
0
0
0
3
21
Investment grade
67
127
127
268
281
Speculative grade
1
12
12
50
75
68
139
139
318
356
Year
1990
1995
2000
2005
H1 2009
Aaa
16.2%
5.0%
5.0%
3.8%
2.8%
Aa
55.9%
21.6%
21.6%
16.7%
18.0%
A
Baa
All
19.1%
43.9%
43.9%
38.1%
34.6%
Baa
7.4%
20.9%
20.9%
25.8%
23.6%
Ba
0.0%
6.5%
6.5%
8.2%
7.3%
B
1.5%
2.2%
2.2%
6.6%
7.9%
Caa-C
0.0%
0.0%
0.0%
0.9%
5.9%
Investment grade
98.5%
91.4%
91.4%
84.3%
78.9%
Speculative grade
1.5%
8.6%
8.6%
15.7%
21.1%
The rating distributions of Asia-Pacific (ex-Japan) and global corporate issuers as of June 2009 are compared
in Exhibit 5. We see that compared to the global corporate sample the share of Asia-Pacific issuers is higher in
the investment grade categories, especially the Aa and A rating categories, and lower in speculative grade
categories. As of June 2009, the median rating in the Asia-Pacific region was A compared to Baa for the global
sample.
Exhibit 5: Rating Distribution of Asia-Pacific (ex-Japan) and Global Corporate
Issuers, June 2009
Percentage of Rated Issuers
40%
35%
30%
25%
20%
15%
10%
5%
0%
Aaa
Aa
A
Baa
Rating Category
Asia-Pacific
5
Ba
B
Caa-C
Global
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Trends in Credit Quality: Transition Matrices and Rating
Changes
Exhibit 6 displays the historical average frequency of alpha-numeric rating changes for Asia-Pacific (ex-Japan)
and the global universe of rated corporate issuers over the period 1990-H1 2009. For example, a category of
“0” indicates no rating change over the twelve-month period. A category of “-1” indicates a single-notch alphanumeric rating downgrade, while “+2” indicates a two-notch alpha-numeric rating upgrade. The vertical axis
indicates the percentage of issuers in each category.
Exhibit 6: Annual Frequency of Alpha-Numeric Rating Changes, 1990-H1 2009
100%
73.1% 76.4%
80%
60%
40%
20%
3.1%
2.3%
3.4%3.4%
6.8% 7.7%
-2
-1
8.8%
7.0%
3.8%
2.2%
0.9%
0.9%
0%
-3 and below
Asia-Pacific
0
1
2
3 and above
Global
Moody’s ratings are generally very stable over a one-year horizon. Despite the Asian financial crisis, ratings
stability exhibited by Asia-Pacific issuers is similar to global issuers – the Asia-Pacific region has issuers that
are almost as stable as their global counterparts (73.1% vs. 76.4%). On average, Asia-Pacific issuers
experienced a 15.6% probability (6.8% downgrade + 8.8% upgrade) of a single alpha-numeric rating change
over a one-year horizon. Changes in excess of a single alpha-numeric rating change, whether upgrades or
downgrades, have been extremely infrequent over a one-year horizon.
Rating migration matrices present a more complete picture of changes in rating quality over time. Exhibit 7
shows average annual, whole-letter rating migration rates since 1990. Each cell in the matrix shows the
weighted average fraction of issuers who held a given row’s rating at the beginning of the measurement period
and the column rating it held at the end of the period, including defaults and withdrawn ratings (WR). 6 The
weights correspond to the size (number of issuers) of the annual cohorts. Global statistics are presented
alongside for comparison.
The largest values in the transition matrix are along the diagonal, reflecting the fact that the most likely rating
for an issuer at the end of a given year is the rating with which it began the year. For example, an issuer
domiciled in the Asia-Pacific region who was rated Aaa at the beginning of the time period has a 79.5%
historical probability of remaining Aaa one year later.
6
6
Ratings are typically withdrawn when all of an issuer’s rated debt matures, is called or converted, or is retired through some other orderly market function
(e.g. M&A).
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Exhibit 7: Average One-Year Rating Migration Rates for Asia-Pacific (exJapan) and Globally, 1990-H1 2009
Asia-Pacific (ex-Japan)
Rating to:
Rating from:
Aaa
Aaa
Aa
A
Baa
Ba
B
Caa-C
D
WR
79.50%
15.43%
0.05%
0.00%
0.00%
0.00%
0.00%
0.00%
5.01%
Aa
1.61%
85.83%
5.90%
0.07%
0.02%
0.00%
0.00%
0.00%
6.57%
A
0.00%
2.82%
85.41%
4.43%
1.82%
0.11%
0.00%
0.00%
5.42%
Baa
0.00%
0.09%
8.54%
77.35%
4.51%
1.14%
0.42%
0.23%
7.72%
Ba
0.00%
0.00%
0.04%
10.79%
70.18%
6.16%
3.06%
1.05%
8.72%
B
0.00%
0.00%
0.00%
0.00%
13.88%
62.73%
9.34%
6.76%
7.41%
Caa-C
0.00%
0.00%
0.00%
0.09%
0.35%
9.98%
62.35%
18.13%
9.11%
Aa
A
Baa
Ba
B
Caa-C
D
WR
Global
Rating to:
Rating from:
Aaa
Aaa
86.56%
8.99%
0.34%
0.02%
0.06%
0.01%
0.00%
0.00%
4.02%
Aa
0.92%
85.88%
7.45%
0.28%
0.04%
0.01%
0.02%
0.02%
5.39%
A
0.07%
2.84%
86.53%
5.09%
0.38%
0.08%
0.03%
0.05%
4.94%
Baa
0.04%
0.20%
4.64%
84.29%
3.91%
0.81%
0.30%
0.18%
5.63%
Ba
0.00%
0.06%
0.40%
6.21%
73.25%
8.01%
0.88%
0.83%
10.36%
B
0.01%
0.04%
0.14%
0.35%
4.99%
72.85%
6.87%
3.69%
11.04%
Caa-C
0.00%
0.02%
0.05%
0.20%
0.46%
8.09%
62.96%
15.00%
13.23%
By contrast, those elements that are off the diagonal reflect transitions to higher (the triangle below the
diagonal) or lower (the triangle above the diagonal) rating categories within one year. For example, an Aarated issuer in the Asia-Pacific region had a historical probability of 5.9% of being downgraded to an A rating
within one year and a 1.6% historical probability of being upgraded to Aaa over the same period. The farther
one moves away from the diagonal, the smaller the migration rates, reflecting a relatively low historical
probability of issuers moving across more than one rating category during the course of a year.
As shown in Exhibit 7, issuers in the Asia-Pacific region are slightly less stable than their global counterparts.
For example, on average, 15.5% of Aaa-rated issuers in the Asia-Pacific region have been downgraded within
one year, as opposed to 9.4% globally. Similar trends persist in other rating categories, however the slightly
lower stability of Asia-Pacific issuers is primarily due to a higher probability of upgrade. For instance, the
percentage of upgrades from the B-rating category to the Ba rating category was 13.9% in the Asia-Pacific
region, about three times larger than the global historical average.
“Rating drift”, the net percentage of upgrades relative to downgrades, provides a useful indicator of changes in
aggregate credit quality. Positive drift indicates overall improvement in credit quality, while negative drift
signals overall deterioration in credit quality. Alternatively, no drift (when upgrades and downgrades are
roughly equal for a given time period) indicates a stable credit environment.
Exhibit 8 compares the annual rating drift rates (upgrade rate minus downgrade rate divided by total rating
count outstanding) for the Asia-Pacific issuers excluding Japan with the ratings drift of issuers globally. On
average, upgrades and downgrades in Asia-Pacific have more or less offset each other across the sample. As
a result, the average rating drift is slightly negative at -4.1% relative to -3.3% globally.
7
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Exhibit 8: Annual Rating Drift for Asia-Pacific (ex-Japan) and Globally, 1990H1 2009 (upgrades minus downgrades divided by total rating count
outstanding)
50%
40%
Rating Drift
30%
20%
10%
0%
-10%
-20%
-30%
-40%
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-50%
Year
Asia-Pacific
Global
As is shown in the exhibit, credit quality trends for Asia-Pacific corporate issuers have been more variable than
for global issuers and moderately correlated with global credit trends. The ratings drift in Asia-Pacific is a result
of several factors, including the Asian financial crisis of 1997-1998 (negative drift) and recent efforts by
companies to restructure their debt and repair balance sheets during the past few years of buoyant economic
growth (positive drift). Since the second half of 2008, the credit cycles of the two regions have converged on a
downward path, consistent with our expectations for a continued gradual softening in credit quality and a
growing number of defaults globally.
Historical Corporate Defaults
In the period between 1990 and June 2009, 216 issuers of corporate bonds and loans in the Asia-Pacific
region defaulted on a total of $50.1 billion of bonds and loans. Of these, 49 issuers were rated by Moody’s with
a total default volume of $15.6 billion. Exhibit 9 presents a chronological summary of the number of defaults
and the volume of defaulted debt for Asia-Pacific issuers, both rated and unrated. In addition, Appendix II lists
the defaulted issuers chronologically. 7
Not surprisingly, given the Asian financial crisis of 1997-1998, the years 1997-2001 are the years with the
largest number of defaults. Defaults have decreased dramatically since 2001. In fact, there was no rated
default in the Asia-Pacific region from 2003 until 2008, although there have been unrated defaults throughout
this time period. The number of defaults picked up slightly in 2008 and the first half of 2009, with a total of 11
rated and 3 unrated issuers defaulting on $3.1bn of debt. In fact the default volume during the first half of 2009
already represents the highest default volume observed since the end of the Asian crisis in 2001.
7
8
Our default studies focus on Moody’s-rated defaults. We present available information on unrated defaults as well in this section, but we caution that
coverage of unrated defaults is incomplete and likely inconsistent over time.
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Exhibit 9: Asia-Pacific (ex-Japan) Corporate Default Counts and Volumes
(Millions of $), Bonds and Loans, as of June 2009
Year
Rated Count Unrated Count Total Count Rated Volume Unrated Volume Total Volume
1990
1
1
2
$200
$345
$545
1991
0
0
0
$0
$0
$0
1992
0
0
0
$0
$0
$0
1993
0
0
0
$0
$0
$0
1994
0
0
0
$0
$0
$0
1995
0
0
0
$0
$0
$0
1996
0
1
1
$0
$201
$201
1997
2
29
31
$614
$2,549
$3,162
1998
5
62
67
$1,444
$9,825
$11,269
1999
7
22
29
$2,109
$8,849
$10,958
2000
5
21
26
$1,048
$7,977
$9,025
2001
13
13
26
$4,749
$1,935
$6,684
2002
3
3
6
$2,010
$214
$2,224
2003
2
2
4
$374
$377
$751
2004
0
1
1
$0
$105
$105
2005
0
3
3
$0
$523
$523
2006
0
3
3
$0
$1,783
$1,783
2007
0
3
3
$0
$82
$82
2008
3
3
6
$288
$61
$349
H1 2009
8
0
8
$2,791
$0
$2,791
Total
49
167
216
$15,627
$34,825
$50,452
Exhibit 10 presents the geographical distribution of defaulters for the period under analysis. During the period
from 1990 – H1 2009, Indonesia had the largest number of rated and unrated defaults, where a total of 62
issuers (17 rated and 45 unrated) defaulted on more than $10 billion worth of bonds and loans. Korea, on the
other hand, had the largest default volume during the period, where a total of 43 issuers defaulted on more
than $18 billion of debt. Most of these defaults occurred during the Asian financial crisis.
Exhibit 10: Geographical Distribution of Asia-Pacific (ex-Japan) Corporate
Defaulters, Counts and Volumes (Millions of $), 1990-H1 2009
Country
Rated
Count
Australia
10
5
15
$2,795
$726
$3,521
China
8
5
13
$2,203
$524
$2,728
Hong Kong
8
9
17
$2,408
$2,536
$4,945
Total
Count
Rated
Volume
Unrated
Volume
Total
Volume
India
0
3
3
$0
$510
$510
Indonesia
17
45
62
$5,269
$5,303
$10,572
Korea
2
41
43
$2,506
$16,158
$18,664
Malaysia
0
15
15
$0
$2,357
$2,357
Philippines
1
4
5
$258
$414
$672
Singapore
1
4
5
$51
$414
$465
Taiwan
0
4
4
$0
$421
$421
Thailand
Total
9
Unrated
Count
2
32
34
$135
$5,462
$5,597
49
167
216
$15,627
$34,825
$50,452
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Exhibit 11 presents the broad industry distribution of defaults during the period of our analysis. Most of the
defaults – 77% of default counts and 78% of the default volume - occurred in the broad category of industrial
companies. This is followed by bank and other financial companies, which together account for 18% of the
default count and 19% of the default volume. Finally, utility and transportation companies together represent
5% of the count and 3% of the default volume.
Exhibit 11: Distribution of Asia-Pacific (ex-Japan) Corporate Defaulters by
Broad Sector, Counts and Volumes (Millions of $), 1990-H1 2009
Rated
Count
Year
Unrated
Count
Total
Count
Rated
Volume
Unrated
Volume
Total
Volume
Banking
2
12
14
$519
$1,548
$2,068
Finance
0
19
19
$0
$1,397
$1,397
Industrial
43
124
167
$14,394
$25,090
$39,484
Other Non-Bank
0
4
4
$0
$6,073
$6,073
Public Utility
1
0
1
$154
$0
$154
Real Estate Finance
0
1
1
$0
$100
$100
Transportation
3
7
10
$559
$618
$1,176
49
167
216
$15,627
$34,825
$50,452
Total
Cumulative Default Rates
Exhibit 12 presents average annual speculative-grade default rates for Moody’s-rated Asia-Pacific (ex-Japan)
issuers. We clarify here that Exhibit 9 (Chronological Summary of Defaults) lists both rated and unrated default
counts, while Exhibit 12 plots the default rate for Moody’s-rated issuers only.
Exhibit 12: Global and Asia-Pacific (ex-Japan) Rated Issuer-Weighted
Speculative-Grade Default Rates, 1996–H1 2009
25%
20%
15%
10%
5%
Global Speculative-Grade Default Rate
Jul-09
Jan-09
Jul-08
Jul-07
Jan-08
Jul-06
Jan-07
Jul-05
Jan-06
Jul-04
Jan-05
Jul-03
Jan-04
Jul-02
Jan-03
Jul-01
Jan-02
Jul-00
Jan-01
Jul-99
Jan-00
Jul-98
Jan-99
Jul-97
Jan-98
Jul-96
Jan-97
Jan-96
0%
Asia-Pacific Speculative-Grade Default Rate
Between 1990 and 1996, there were no speculative-grade defaults in the Asia-Pacific region, and therefore the
speculative-grade default rate is zero. The speculative-grade default rate peaked twice during the Asian
financial crisis – once in 1998 and again in 2001. There were no rated defaults in the four years preceding the
2008 global financial crisis, and therefore the speculative-grade default rate for issuers domiciled in the AsiaPacific region is zero. With the pick up in defaults over 2008 and 2009, we see the default rate for Asia-Pacific
10
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
issuers rising along with the global default rate. In June 2009, the issuer-weighted speculative-grade default
rate for Asia-Pacific (ex-Japan) issuers stood at 10.5%, similar to the global speculative-grade default rate of
10.3%.
Investors are also interested in default rates for investment horizons longer than one year. Exhibit 13 presents
one-year through ten-year issuer-weighted average cumulative default rates for Asia-Pacific (ex-Japan)
issuers. Also presented are the global statistics for comparison. As in our other default studies, historical
cumulative default rates are calculated by averaging the experiences of issuer cohorts formed at monthly
frequencies. 8 By forming and tracking such cohorts of all Moody’s-rated issuers at the beginning of every
month, we replicate the experience of a portfolio of both seasoned and new-issue bonds purchased in any
given month. The dynamic nature of the cohorts allows the estimation of cumulative default risk over multi-year
horizons. It also allows for the comparison and averaging of default rates over different periods. Appendix I at
the end of the report described the methodology for estimating cumulative default rates.
Exhibit 13: Asia-Pacific (ex-Japan) and Global Issuer-Weighted Cumulative
Default Rates, 1990-H1 2009
Asia-Pacific
(ex-Japan)
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9 Year 10
Aaa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Aa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
A
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Baa
0.237%
0.600%
1.094%
1.869%
2.627%
3.175%
3.393%
3.393%
3.393%
3.393%
Ba
1.099%
3.029%
5.297%
8.170%
10.619%
12.035%
12.035%
12.035%
12.035%
12.035%
B
7.016%
12.972%
20.633%
28.650%
34.020%
39.895%
49.042%
49.042%
49.042%
49.042%
Caa-C
18.991%
37.063%
53.260%
58.417%
60.346%
60.346%
60.346%
60.346%
60.346%
60.346%
Investment Grade 0.067%
0.169%
0.304%
0.513%
0.711%
0.844%
0.892%
0.892%
0.892%
0.892%
Speculative Grade 5.041%
10.111% 15.525% 19.796% 22.663% 24.538% 25.723% 25.723% 25.723% 25.723%
All Asia-Pacific
1.062%
2.124%
3.226%
4.137%
4.775%
5.191%
5.420%
5.420%
5.420%
5.420%
Global
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9 Year 10
Aaa
0.000%
0.022%
0.022%
0.022%
0.022%
0.022%
0.022%
0.022%
0.022%
0.022%
Aa
0.018%
0.044%
0.056%
0.079%
0.109%
0.130%
0.150%
0.160%
0.162%
0.195%
A
0.047%
0.136%
0.255%
0.393%
0.579%
0.781%
1.002%
1.272%
1.553%
1.821%
Baa
0.185%
0.489%
0.854%
1.267%
1.717%
2.188%
2.655%
3.148%
3.688%
4.328%
Ba
0.873%
2.359%
4.178%
6.187%
7.849%
9.601%
11.158%
12.746%
14.623%
16.605%
B
3.907%
9.346%
14.814%
19.661%
24.197%
28.676%
33.172%
37.098%
40.666%
43.888%
Caa-C
16.062%
27.200%
36.571%
43.976%
50.113%
54.240%
57.298%
60.506%
64.237%
69.296%
0.587%
0.810%
1.041%
1.275%
1.532%
1.801%
2.094%
Investment Grade 0.083%
0.225%
0.394%
Speculative Grade 4.418%
9.110%
13.604% 17.532% 20.919% 24.053% 26.958% 29.550% 32.071% 34.463%
All Global
3.287%
1.617%
4.817%
6.103%
7.184%
8.141%
8.993%
9.752%
10.475%
11.162%
As Exhibit 13 illustrates, Moody’s ratings powerfully ran order default risk at all horizons both in Asia-Pacific
and globally, as the probability of default rises with lower ratings.
A comparison between Asia-Pacific and global default rates show that, on average, default rates are broadly
similar by rating category. Indeed, for shorter time horizons, Asia-Pacific default rates in the Baa-C categories
8
11
Monthly cohorts have the advantage of capturing rating changes that occur within a calendar year. The default rates are calculated based on cohorts of all
issuers holding a given estimated senior unsecured rating at the start of a given month. The cohorts are dynamic in that they change based on whether
these issuers leave the cohort due to default or non credit-related reasons (e.g. maturing of debt). While the cohort frequency is monthly, the accumulation
periodicity remains 12 months, so that we track default rates over horizons of one year, two years, three years, etc.
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
are slightly higher than for the global sample, largely reflecting the impact of the defaults in the pulp and paper
industries during 2001. However the differences narrow down and reverse as the time horizon lengthens. The
clustering of corporate defaults in the Asia-Pacific region around the years of the Asian financial crisis also
explains the slightly higher shorter-horizon Caa-C category default rate.
Even though the investment grade and speculative grade default rates are broadly similar between the AsiaPacific and the global sample, the overall default rate is lower in the Asia-Pacific region. This is due to the
difference in the rating distributions of the two samples of issuers. As previously illustrated in Exhibit 5, the
Asia-Pacific region has a greater share of higher-rated corporate bond and loan issuers compared to the
global sample. As a result, when aggregating across all rated issuers, historical default rates are actually lower
in the Asia-Pacific region than globally.
Regional Differences in Rating Transitions and
Cumulative Default Rates
Until now, we have discussed the Asia-Pacific region as a single portfolio of issuers operating in similar capital
markets. However, issuers in different countries in the region operate under different bankruptcy and
regulatory regimes, commercial lending environments, and macro-economies. As such, investors may be
interested in defaults and rating transitions at a more specific level. In this section, we create sub-samples
based on a more “natural” pooling of issuers to account for differences in capital markets.
Exhibit 14: Average One-Year Rating Transitions within the Asia-Pacific
Region, 1990-H1 2009
Australia and New Zealand
Rating to:
Rating from:
Aaa
Aa
A
Baa
Ba
B
Caa-C
D
WR
Aaa
79.71%
15.61%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
4.67%
Aa
1.75%
86.83%
4.19%
0.09%
0.03%
0.00%
0.00%
0.00%
7.12%
A
0.00%
2.89%
86.55%
5.03%
0.32%
0.10%
0.00%
0.00%
5.11%
Baa
0.00%
0.19%
7.33%
82.69%
2.56%
0.48%
0.00%
0.00%
6.75%
Ba
0.00%
0.12%
0.00%
6.67%
65.05%
11.53%
4.85%
1.33%
10.44%
B
0.00%
0.00%
0.00%
0.00%
4.37%
61.93%
15.85%
6.01%
11.84%
Caa-C
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
16.05%
80.25%
3.70%
Asia-Pacific excluding Japan, Australia and New Zealand
Rating to:
Rating from:
Aaa
Aa
A
Baa
Ba
B
Caa-C
D
WR
Aaa
77.87%
Aa
0.97%
14.04%
0.43%
0.00%
0.00%
0.00%
0.00%
0.00%
7.66%
81.19%
13.83%
0.00%
0.00%
0.00%
0.00%
0.00%
4.00%
A
0.00%
2.75%
84.34%
3.87%
3.23%
0.12%
0.00%
0.00%
5.70%
Baa
0.00%
0.02%
9.34%
73.86%
5.79%
1.57%
0.69%
0.38%
8.36%
Ba
0.00%
0.00%
0.02%
11.52%
71.10%
5.20%
2.74%
1.00%
8.41%
B
0.00%
0.00%
0.00%
0.00%
16.11%
62.93%
7.71%
6.94%
6.31%
Caa-C
0.00%
0.00%
0.00%
0.09%
0.38%
10.74%
65.88%
13.38%
9.52%
Within the Asia-Pacific region, we focus on two distinct sub-regions:
1.
12
Australia and New Zealand
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
2.
Rest of Asia Pacific. 9
Exhibit 14 shows the different rating transitions for these sub-regions. Investment-grade issuers in Australia
and New Zealand are slightly more stable than those in the rest of the Asia-Pacific region in the investmentgrade rating categories. However, speculative-grade issuers in Australia and New Zealand are slightly less
stable. There are very few Caa-C rated issuers in Australia and New Zealand, and those specific issuers had a
very high one-year default rate.
Exhibit 15 compares the cumulative default rates between Australia and New Zealand and the rest of the AsiaPacific region. These default rates show that credit quality is very strong for Australia-New Zealand
investment-grade issuers – there are no defaults within the 10-year horizon. However, the riskiest of the
speculative-grade issuers, in the Caa-C rating category, are risky indeed – there has been a 100% default rate
by year 2. For B-rated issuers, there is a 100% default rate by year 6. However, the extremely small number of
speculative-grade issuers in Australia and New Zealand is driving these anomalous results. In any given
cohort, there were no more than a few issuers both in the Caa-C and in the B rating categories. The rest of the
Asia-Pacific region has cumulative default rates that are fairly similar to the complete Asia-Pacific region (see
Exhibit 13).
Exhibit 15: Issuer-Weighted Cumulative Default Rates by Region, 1990-H1
2009
Australia and
New Zealand
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9 Year 10
Aaa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Aa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
A
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Baa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Ba
1.408%
3.522%
8.176%
12.642%
21.797%
24.387%
24.387%
24.387%
24.387%
24.387%
B
6.389%
22.323%
42.962%
65.526%
88.847% 100.000% 100.000% 100.000% 100.000% 100.000%
Caa-C
81.761% 100.000% 100.000% 100.000% 100.000% 100.000% 100.000% 100.000% 100.000% 100.000%
Investment Grade 0.000%
0.000%
Speculative Grade 7.916%
15.958% 25.382% 34.620% 46.304% 50.382% 50.382% 50.382% 50.382% 50.382%
All Australia and
New Zealand
0.503%
0.976%
0.000%
1.458%
0.000%
1.833%
0.000%
2.236%
0.000%
0.000%
0.000%
0.000%
2.359%
2.359%
2.359%
2.359%
0.000%
2.359%
Rest of Asia-Pacific (excl. Japan, Australia, and New Zealand)
9
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9 Year 10
Aaa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Aa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
A
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Baa
0.393%
0.995%
1.812%
3.094%
4.335%
5.207%
5.547%
5.547%
5.547%
5.547%
Ba
1.044%
2.942%
4.825%
7.484%
9.132%
10.430%
10.430%
10.430%
10.430%
10.430%
B
7.168%
10.786%
15.526%
20.828%
23.032%
28.163%
39.095%
39.095%
39.095%
39.095%
Caa-C
14.052%
32.075%
49.555%
55.121%
57.203%
57.203%
57.203%
57.203%
57.203%
57.203%
Investment Grade 0.155%
0.393%
0.721%
1.243%
1.755%
2.111%
2.243%
2.243%
2.243%
2.243%
Speculative Grade 4.516%
9.065%
13.826% 17.424% 19.203% 20.850% 22.165% 22.165% 22.165% 22.165%
All Rest of AsiaPacific
3.220%
1.587%
4.954%
6.444%
7.351%
8.116%
8.626%
8.626%
8.626%
8.626%
As mentioned in the introduction, we have eliminated Japan from our analysis because of its many differences from the rest of the region. For interested
readers, we provide cumulative default rates and rating transitions for Japan, as well as for the Asia-Pacific region including Japan in Appendix IV.
13
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Rating Performance Measures
The default rates presented above demonstrate that Moody’s Asia-Pacific corporate ratings are correlated with
subsequent default experience at long investment horizons. One of the desirable properties of an efficient
rating system is its ability to separate the low credit risks from the high credit risks. A key metric designed to
measure the relative accuracy of a rating system is the cumulative accuracy profile (CAP). The CAP curve is
constructed by plotting, for each rating category, the proportion of defaults accounted for by issuers with the
same or lower rating against the proportion of all issuers with the same or lower rating.
Exhibit 16 presents the one-year-ahead horizon CAP curves for Asia-Pacific (ex-Japan) and for global ratings
observed between 1990 and H1 2009. The CAP curve is useful for making a visual assessment of the
information content embedded in the relative ranking of credit risk provided by a set of ratings. A rating system
that possessed no predictive information about default risk would lie on the 45-degree line. The further the
CAP curve bows towards the top left corner, the better it is at identifying defaults in the riskiest rating
categories.
The CAP plots reveal that historically both global and Asia-Pacific ratings have done a good job rank-ordering
one-year default risk. Across regions, issuers historically have carried low ratings one year prior to default. For
example, 95% of defaulters in Asia-Pacific carried a rating of Ba1 or lower 12 months before default, while Ba1
rated issuers or below accounted for approximately 97% of defaulting issuers globally.
Exhibit 16: One-Year Cumulative Accuracy Profiles, 1990-H1 2009
100%
Cumulative Proportion of Defaulters
90%
80%
70%
60%
50%
40%
45-degree line
30%
20%
Asia-Pacific
10%
Global
0%
0%
20%
40%
60%
80%
100%
Cum ulative Proportion of Issuers
A summary measure of rating accuracy that compresses the information depicted in the CAP curve into a
single summary statistics is the accuracy ratio (AR). The AR is the ratio of the area between the CAP curve
and the 45-degree line to the total area above the 45-degree line. The AR lies between minus one and plus
one (or -100% and +100%), similar to a correlation statistics. As can be inferred by the CAP curves in Exhibit
16, Moody’s Asia-Pacific ratings have had modestly higher accuracy ratios than their global counterparts. The
historical average one-year accuracy ratio for Asia-Pacific ratings is 95.2% for the 1990-H1 2009 period,
compared to 90.6% for global ratings during the same period.
14
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Recovery Rates in Default
Moody’s ratings are statements about expected credit losses, which equals the probability of default times the
expected loss severity rate (i.e., one minus the expected recovery rate) given default. Since the probability of
default is usually the same across the various obligations of an issuer, differences in ratings across an issuer’s
capital structure generally reflect different expectations of recovery rates in the event of default.
Commensurate with our practice in our global corporate default study, in Exhibit 17, we estimate recovery
rates using 30-day post-default bid prices on defaulted debt, although no trades may have taken place at
these prices. Appendix III provides a list of recovery prices for defaulted debt in the Asia-Pacific region.
Exhibit 17 presents the average recovery rates for the Asia-Pacific region and for the global sample, with one
caveat that the number of observations in Asia-Pacific is quite small compared to the global universe. We see
that issuer-weighted recovery rates at the senior unsecured level, where data is more abundant, compare
closely with their global counterparts. The monotonic relationship between instrument seniority and recovery
rate is clearly visible in the global sample. The higher recovery rate shown for Subordinated instruments in the
Asia-Pacific region is based on a very small sample size.
Exhibit 17: Historical Recovery Rates for Global and Asia-Pacific (ex-Japan)
Issues by Lien Position (rated and unrated issuers), 1990-H1 2009
Global
Instrument
Lien position
Issuer-weighted
recovery rate
Number of issuers
Loan
Sr. Secured
63.3
353
Bond
Sr. Secured
49.0
200
Bond
Sr. Unsecured
34.7
615
Bond
Subordinated
28.2
591
Lien position
Issuer-weighted
recovery rate
Number of issuers
Sr. Secured
68.1
2
Bond
Sr. Secured
29.2
15
Bond
Sr. Unsecured
30.9
22
Bond
Subordinated
36.2
6
Asia-Pacific (ex- Japan)
Instrument
Loan
Credit Loss Rates
In the previous sections we examined the two main components of credit loss: the probability of default and
the severity of loss given default (one minus recovery rate). In this section, we bring these two components
together to discuss credit losses and demonstrate that Moody’s ratings effectively differentiate credit loss
rates.
Moody’s ratings process is designed to produce a consistent measure of relative credit risk, which in large part
is determined by credit losses. Credit losses are defined mathematically as follows:
Credit Loss Rate= (Default Frequency)*(1-Recovery Rate)
Credit losses can be defined as the loss incurred in total return by a buy-and-hold bond portfolio due to default.
Exhibit 18 presents average annual credit losses for portfolios based on Moody’s broad letter rating
categories.
15
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Exhibit 18: One-Year Credit Losses for Asia-Pacific (ex-Japan) and Global
Issuers, 1990-H1 2009
14%
12%
10%
8%
6%
4%
2%
0%
Baa
Ba
B
Global
Caa-C
Asia-Pacific
SpeculativeGrade
Average speculative-grade one-year credit loss rates across the two regions are very similar. In the lower part
of the speculative-grade range, issuers in the Asia-Pacific region excluding Japan have slightly higher credit
loss rates than the complete global sample. At the aggregate speculative-grade level, Asia-Pacific loss rates
are very similar to their global counterpart, reflecting the similarities in both aggregate default and recovery
rates. Importantly, these results signal that Moody’s ratings in Asia-Pacific are consistent with Moody’s ratings
globally as indicators of credit loss rates.
The highest-risk portfolios (with an average rating of Caa-C) have the highest credit losses and the lowest-risk
portfolios (rated Baa) have the lowest credit losses. The amount of credit loss increases exponentially as we
go down the rating scale.
16
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Moody’s Related Research
Special Comments:
„
Corporate Default and Recovery Rates, 1920-2008, February 2009 (114844)
„
European Corporate Default and Recovery Rates, 1985-2008, May 2009 (115292)
„
Latin American Corporate Default and Recovery Rates, 1990-H1 2009, July 2009 (118744)
„
Emerging Market Corporate and Sub-Sovereign Defaults and Sovereign Crises: Perspectives on Country
Risk, February 2009 (113931)
„
Sovereign Default and Recovery Rates, 1983-2008, March 2009 (115232)
„
Sovereign Defaults and Interference: Perspectives on Government Risks, August 2008 (110114)
„
Strong Loan Issuance in Recent Years Signals Low Recovery Prospects for Loans and Bonds of
Defaulted U.S. Corporate Issuers, June 2008 (109457)
„
Guide to Moody’s Default Research: June 2009 Update, June 2009 (118044)
„
Measuring Corporate Default Rates, November 2006 (100779)
„
Moody’s Senior Ratings Algorithm and Estimated Senior Ratings, February 2009 (114614)
Rating Methodology:
„
Moody’s Approach to Evaluating Distressed Exchanges, March 2009 (115337)
„
A Guide to Moody's Sovereign Ratings, December 2008 (98177)
„
Sovereign Bond Ratings, September 2008 (109490)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication
of this report and that more recent reports may be available. All research may not be available to all clients.
17
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Appendix I: Methodology and Data Sources
Methodology Changes in This Year’s Report
The historical data contained in Moody’s 2008 global default study includes a number of revisions relative to
previous years’ publications. Moody’s occasionally discovers historical defaults, leading to minor revisions of
the historical data. As always, the data contained in the most recently published Moody’s default study
supersedes the data published in previous reports.
Change in Senior Rating Algorithm
In January 2009, we applied a smoothing procedure in the senior rating algorithm to estimate every issuer’s
senior unsecured ratings. This enhancement aims at ironing out artificial rating changes that are not resulting
from the change of an issuer’s credit quality, but due to the switch of reference debt based on which the
estimated senior unsecured rating is derived from. The implementation of smoothing procedure is particularly
important to structural breaks when Moody’s introduced new debt ratings, refined its rating scale and adjusted
its notching practices. For example, the introduction of issuer ratings on Oct 25th 1999 will result in numerous
artificial rating changes if the smoothing procedure is not in place. For other times, the impact of smoothing is
modest. For instance, only 3% of Moody’s-rated issuers observe adjustments in their estimated senior
unsecured ratings (mostly by one notch) on January 1st, 2009.
Removal of Special Purpose Vehicles
In January 2009, we removed substantial number of special purpose vehicles from Hartford Financial Services
Group, Inc., Principal Financial Group, Inc., and Protective Life Corporation. These SPVs are non-insurance
conduits and mostly Aa3 or A1 credits. None of them have defaulted.
Rating Migration Calculations
A rating migration matrix completely summarizes changes in credit ratings over a given time horizon. The cells
of the matrix are discrete-time estimates of rating migration probabilities. They show rate of rating change
measured at two points in time; e.g. the start and end of one year. When calculating credit rating migration
rates, Moody's treats rating changes, rating withdrawals, and defaults as mutually exclusive states. For
example, an issuer that is downgraded on the day of default is counted only as a default, not a downgrade or a
downgrade and default. Similarly, an issuer whose rating is withdrawn on the day of default is counted as a
default, not a withdrawal.
The probability that an issuer’s rating i held on cohort date y will transition to rating j (which includes default
and withdrawal) over a time horizon T is calculated as:
pijy (T ) =
nijy (T )
niy (0)
The weighted average rating migration rate for all cohorts y in the historical data set Y is calculated as:
p ij (T ) =
∑n
y∈Y
∑n
y∈Y
18
y
ij
y
i
(T )
(0)
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Default Rate Calculations
Moody’s method for calculating cumulative default rates is a discrete-time approximation of the nonparametric
continuous-time hazard rate approach. 10 Cumulative default rates are calculated from marginal default rates,
which represent the probability that an issuer that has survived in the sample through a particular date will
default over the next time interval (typically, one year) following that date.
The marginal default rate for issuers holding rating i on cohort date y is the ratio of the number of defaulting
issuers in period t divided by the number of issuers exposed to the risk of default in period t:
d iy (t ) =
xiy (t )
niy (t ) − xiy (t − 1) − 12 [ wiy (t ) + wiy (t − 1)]
The denominator of the marginal default rate adjusts for defaults that occur prior to time interval t, as well as
rating withdrawals, w(t), that occur in periods prior to interval t and a small adjustment for withdrawals that
occur in time interval t. Cumulative default rates for investment horizons of length T, D(T), are built up from
the marginal default rates:
T
Diy (T ) = 1 − ∏[1 − d iy (t )]
t =1
Or, expanding the above equation (and dropping indices for brevity):
T −1
D(T ) = d (1) + d (2)[1 − d (1)] + d (3)[(1 − d (1))(1 − d (2))] + ... + d (T )(∏ [1 − d (t )])
t =1
In the first time period, a fraction of the credit exposures in the cohort either defaults or survives. The credit
exposures that survive period one may then go on to default or survive in period two; those that survive period
two may go on to default or survive in period three, etc. Because the time periods are non-overlapping and the
probability of default in each period is assumed to be independent, the T-period cumulative default rate is
defined as one minus the product of the T marginal survival rates.
The calculation of the average cumulative default rate for rating class i, Di (T ) , is derived from the weighted
average marginal default rates,
d i (t ) , calculated from all the available cohort marginal default rates in the
historical data set Y:
T
Di (T ) = 1 − ∏ [1 − d i (t )]
t =1
where
∑x
d (t ) =
∑n
y∈Y
i
y∈Y
10
y
i
(t )
y
i
(t )
See Moody’s Global Credit Research “Measuring Corporate Default Rates”, November 2006.
19
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
The default rates calculated in multi-year rating migration matrices are not comparable to those calculated
using Moody’s discrete-time hazard rate method described above. Rating migration matrices account for rating
withdrawals separately (in the column labeled WR) while the hazard rate method incrementally adjusts the
denominator of the marginal default rate to remove rating withdrawals. Occasionally, withdrawal-adjusted
rating migration matrices are calculated as follows:
p (T ) =
y
ij
*
pijy (T )
(1 − piwy (T ))
Using this method, all issuers whose ratings are withdrawn are removed. In effect, data for issuers whose
ratings are withdrawn is completely discarded. This method generally yields higher default rate estimates than
the hazard rate method. Hence, Moody’s hazard rate-derived default rate estimates lay between unadjusted
migration matrix-derived default rates and withdrawal-adjusted migration matrix-derived default rates.
Recovery Rate Calculations
Moody's estimates defaulted debt recovery rates using market bid prices observed roughly 30 days after the
date of default. Recovery rates are measured as the ratio of price to par value. Using post-default prices to
measure recovery (or its complement, loss severity) parallels common practice in the credit default swaps
market. Moreover, recovery rates measured in this way are most relevant for cash bond investors who
liquidate their holdings shortly after default as often required by their portfolio governance rules or their own
investment objectives. For investors holding defaulted securities until ultimate resolution, prices observed
shortly after default are generally accepted as the market's estimate of discounted expected ultimate recovery
rates.
The alternative approach of directly measuring ultimate realized recoveries presents a number of estimation
challenges, including the appropriate discount rate to apply to cash-flows and valuing the assets used to pay
creditor claims, which may include illiquid new securities (e.g., equity and derivative instruments) as well as
physical assets. The table below defines the various ways Moody's calculates recovery rates. 11 For the
purposes of measuring expected credit loss rates, we rely on issuer-weighted mean recovery rates.
Statistic
Issuer-Weighted Mean Recovery Rates
Value-Weighted Mean Recovery Rates
Issuer-Weighted Median Recovery Rates
Issue-Weighted Mean Recovery Rates
11
20
Definition
They are derived by estimating mean recovery rates for each issuer,
then averaging them across issuers. They are useful for predicting
recovery rates for portfolios that are well diversified across issuers.
They represent the average of recovery rates on all defaulted
issuers, weighted by the face value of those issues. These estimates
are useful for predicting recovery rates on the market portfolio.
They are estimated as median of issuer-weighted recovery rates and
are used for predicting the most likely recovery rate for a randomly
selected issuer.
They are estimated using recovery rates for each issue and taking
the average of all issues. While this measure is widely reported, it is
useful only for predicting the average recovery rate on a portfolio of
default bonds diversified across issues but without reference to
issuer or issue size.
This table is derived from Moody’s Special Comment “Recovery Rates on Defaulted Bonds and Preferred Stocks, 1982-2003”, December 2003.
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Credit Loss Rate Calculations
Moody’s credit ratings are opinions of relative expected credit losses. Credit losses are therefore a function of
both probability of default (PD) as well as the severity of default (LGD). The expected credit loss rate for rating
category i is calculated as the product of the T-horizon average issuer-weighted default rate and the T-horizon
average issuer-weighted senior unsecured loss severity rate (where r(T) is the average senior unsecured
recovery rate at horizon T):
li (T ) = D i (T ) × (1 − r i (T ))
CAP Curve and Accuracy Ratio
In addition to assigning low ratings to issuers that ultimately default, the effectiveness of a rating system
depends on its ability to assign high credit ratings to issuers that do not default. In other words, an efficient
rating system is able to separate the low credit risks from the high credit risks. A metric designed to measure
this aspect of ratings performance is the cumulative accuracy profile (CAP) plot. 12 The CAP plot graphs the
cumulative proportion of defaults from a portfolio (the y-axis) against the proportion of issuers exposed to the
risk of default (the x-axis), sorted by riskiness. A rating system that randomly identified defaults from nondefaults would plot a line directly on the 45-degree line. The more powerful the discriminatory power of the
rating system, the further the CAP curve bows toward the top left corner.
CAP curves are powerful tools for visualizing rating performance, but can be unwieldy from making
comparisons over many time periods. A summary measure of rating accuracy that can be derived from the
CAP curve is the accuracy ratio (AR). The accuracy ratio is the ratio of the area between the CAP curve and
the 45-degree line to the total area above the 45-degree line. A rating system that perfectly differentiates
defaults from non-defaults would score an AR of 100%, while a rating system that had zero predictive ability
would score 50%. 13
Data Sources
Moody’s bases the results of this study on its proprietary database of ratings and defaults for corporate bond
and loan issuers. Municipal and sub-sovereign debt issuers, structured finance securities, private placements,
and issuers with only short-term debt ratings are excluded unless otherwise noted. In total, Moody's data
covers the credit experiences of over 18,000 corporate issuers that sold long-term public debt at some time
between 1920 and 2008. As of January 1, 2008 approximately 6,000 corporate issuers held a Moody’s longterm bond, loan, or corporate family rating.
Moody’s database of corporate defaults covers over 3,600 long-term bond defaults by issuers both rated and
non-rated by Moody’s. Additional data sources, such as Lehman Brothers index data, supplemented Moody’s
proprietary data in the construction of the aggregate dollar volume-weighted default rates. Defaulted bond
pricing data was derived from Bloomberg, Reuters, and TRACE. The majority of these market quotes
represent an actual bid on the debt instrument, although no trade may have occurred at that price. Over the
1982-2008 period, the dataset includes post-default prices for approximately 3,000 defaulted instruments
issued by over 1,400 defaulting corporations. Moody's makes the 1970-2008 credit rating, default, and
recovery rate data used in this study available through its Default Risk Service (DRS) database.
12
13
21
For a more detailed discussion of rating accuracy metrics see Moody’s Global Credit Research "Measuring the Performance of Corporate Bond Ratings",
November 2006.
The accuracy ratio possesses the same information about discriminatory power as the area under the receiver-operator characteristics curve (AROC) and
the Gini coefficient. Each measure quantifies rank rather than scale.
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Appendix II: Chronological List of Asia-Pacific (exJapan) Corporate Rated and Unrated Defaulters, 1990H1 2009
Default
Year Company
1990
1990
1996
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
22
Fairfax (John) Group Pty, Ltd.
Linter Textile Corporation
Amcol Holdings Limited
Alphatec Electronics Public Company Limited
Asia Motors Co., Ltd.
Australis Holdings Pty Limited
Australis Media Limited
Bangkok Land (Cayman Islands) Limited
Burns, Philp & Company Limited
CMIC Finance & Securities PCL
Finance One PCL
Hanbo Steel Industry Co.
Hyundai Metal Co.
Jinro (H.K.) International Ltd.
Jinro Limited
Juldis Develop Public Company Limited
Kia Motors Corp.
Kia Precision Works Co., Ltd.
Kia Steel Co., Ltd.
Kisan Corporation
Mando Machinery Corporation
Multi-Credit Corp. of Thailand PCL
Newmax International (H.K.) Co., Ltd.
NTS Steel Group PCL
Property Perfect Public Company Limited
PT Putra Surya Multidana Tbk.
Sahaviriya City PCL
Sammi Steel Company Limited
Somprasong Land Public Company Limited
Tae Il Media (H.K.) Co., Ltd.
Tae Il Media Co., Ltd.
TPI Polene Public Company Limited
Wall Street Finance & Securities PCL
Wattachak Public Company Limited
Aokam Perdana Berhad
Arab Malaysian Corporation Berhad
Astra Overseas Finance B.V.
Bakrie Finance Corporation Tbk.
Bakrie Indonesia B.V.
Bakrie International Finance Company B.V.
Bangkok Bank of Commerce Pcl
BIN Finance Company B.V.
Cibinong International Finance Company B.V.
Ciputra Development International Finance B.V.
Citra Marga Finance B.V.
CP Pokphand (Finance) Co., Ltd.
CP Pokphand Co. Ltd.
Dhana Siam Finance Public Company Limited
Dharmala Intiutama International B.V.
DSS Overseas International B.V.
Duta Anggada International B.V.
FSW International Finance Company B.V.
Domain
Australia
Australia
Singapore
Thailand
Korea
Australia
Australia
Thailand
Australia
Thailand
Thailand
Korea
Korea
Hong Kong
Korea
Thailand
Korea
Korea
Korea
Korea
Korea
Thailand
Hong Kong
Thailand
Thailand
Indonesia
Thailand
Korea
Thailand
Hong Kong
Korea
Thailand
Thailand
Thailand
Malaysia
Malaysia
Indonesia
Indonesia
Indonesia
Indonesia
Thailand
Indonesia
Indonesia
Indonesia
Indonesia
Hong Kong
Hong Kong
Thailand
Indonesia
Indonesia
Indonesia
Indonesia
Defaulted Amount Rated
($ million)
Issuer?
$345
$200
$201
$34
$336
$268
$346
$99
$0
$13
$186
$45
$15
$80
$108
$60
$204
$18
$26
$280
$26
$65
$64
$100
$42
$26
$30
$173
$80
$82
$11
$240
$55
$51
$124
$99
$200
$15
$185
$469
$62
$100
$150
$100
$300
$135
$243
$65
$316
$100
$100
$135
0
1
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Default
Year Company
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1999
1999
1999
1999
1999
1999
1999
1999
23
Fujian Enterprises (Holdings) Co. Ltd.
Guangdong International Trust & Investment Corporation
Guangdong Overseas Chinese Trust & Investment Corp.
Guangzhou International Trust & Investment Corp.
Hemaraj Land and Development Public Company Limited
Huitong International Trust and Investment Corp.
Korea Tungsten Co., Ltd.
Kwang Myung Electric Engineering Co., Ltd.
Malaysian General Investment Corporation Bhd.
Midopa Co., Ltd.
Mulia Industrindo Finance B.V.
Mulialand Finance B.V.
Ometraco Nederland B.V.
Pembinaan YCS Bhd.
Peregrine Investments Holdings Ltd.
Philippine Airlines Inc.
Polysindo International Finance Company B.V.
Polytama International Finance B.V.
Primetown Property Group Inc.
PT Astra International Tbk.
PT Bahana Pembinaan Usaha
PT Bakrie Investindo
PT Bank Modern Tbk.
PT Cakrawala Andalas Televesi
PT Ciputra Development
PT Ciputra Surya Tbk.
PT Dharmala Sakti Sejahtera
PT Duta Anggada Realty Tbk.
PT Jakarta International Hotels & Development Tbk.
PT Muliaglass
PT Muliakeramik Indahraya Tbk.
PT Mulialand Tbk.
PT Pakuwon Jati Tbk.
PT Polysindo Eka Perkasa
PT Semen Cibinong Tbk.
PT Suryamas Dutamakmur Tbk.
Renong Berhad
Robinson Department Store Plc
Sahaviriya OA Public Company Limited
Sahaviriya Steel Industries Plc
Shinwon Industries Co., Ltd.
Taiping Consolidated Berhad
Thai Modern Plastic Industry PCL
Thai Oil Company Limited
Thai Petrochemical Industry Public Company Limited
TIME Engineering Berhad
United Communication Industry Public Company Limited
United Engineers (Malaysia) Berhad
VDH Holland B.V.
Cathay International Limited
China-Singapore Suzhou Industrial Park Development Co.,
Li it d Electronics Corporation Ltd.
Chuntex
Daewoo Corporation
Daewoo Heavy Industries Ltd.
Essar Steel Limited
Expressway Lingkaran Tengah Sdn. Bhd.
Guangdong Enterprises (Holdings) Ltd.
Domain
China
China
China
China
Thailand
China
Korea
Korea
Malaysia
Korea
Indonesia
Indonesia
Indonesia
Malaysia
Hong Kong
Philippines
Indonesia
Indonesia
Philippines
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Malaysia
Thailand
Thailand
Thailand
Korea
Malaysia
Thailand
Thailand
Thailand
Malaysia
Thailand
Malaysia
Singapore
Hong Kong
Singapore
Taiwan
Korea
Korea
India
Malaysia
Hong Kong
Defaulted Amount Rated
($ million)
Issuer?
$150
$399
$64
$30
$54
$7
$136
$8
$17
$23
$225
$200
$80
$93
$272
$200
$683
$200
$41
$347
$325
$54
$13
$70
$14
$35
$6
$14
$71
$11
$11
$35
$34
$27
$170
$40
$664
$291
$0
$110
$10
$33
$15
$1,766
$590
$250
$332
$50
$100
$350
$100
$8
$5,829
$151
$290
$107
$985
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
1
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Default
Year Company
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
1999
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
24
Hanmi Leasing & Finance (HK) Ltd.
Indorayon International Finance B.V.
International Engineering Public Company Limited
Linkedua (Malaysia) Bhd.
Nam Kwong (Group) Company, Ltd.
Orion Electric Company Ltd.
P.T. Inti Indorayon Utama
Pacific Can Investment Holdings Ltd.
Precious Shipping Public Company Ltd.
PT Bank Mashill Utama Tbk.
PT Bank Papan Sejahtera
PT Hanjaya Mandala Sampoerna
Samsung Motor, Inc.
Shin Yen Textile Company, Ltd.
Singer Company N.V.
Sri Thai Superware Public Company Limited
Technology Resources Industries Bhd.
TelecomAsia Corporation Pcl
Traffic Stream (BVI) Infrastructure Company, Ltd.
Tri Polyta Finance B.V.
Uniwide Holdings, Inc.
Bangkok Expressway Co Ltd.
Bulong Operations Pty Ltd.
Central Banking Corporation
Daewoo Motor Company Ltd.
DGS International Finance Company B.V.
Dong Ah Construction Industrial Co. Ltd.
Greater Beijing First Expressways Limited
H&S Investment Bank
Hainan International Trust & Investment Corporation
Hyundai Engineering & Construction Co. Ltd.
Italian-Thai Development Plc.
Kookmin Leasing Company Ltd.
Korea Express Co. Ltd.
Korea Merchant Banking Corporation
Land & General Berhad
Nakornthai Strip Mill Public Company Limited
Nara Investment Banking Corporation
Panda Global Energy Company
Panjapol Pulp & Paper Industry Company Ltd.
Saehan Industries, Inc.
Saehan Media Corporation
Samsung Commercial Vehicle Company
Sewoo Polymer Company
Southern Petrochemicals Industries Corporation Ltd.
Yeungnam Merchant Banking Corporation
Zhu Hai Highway Company Limited
Advance Agro Public Company Limited
APP China Group Limited
APP Global Finance (III) Cayman Limited
APP Global Finance Limited
APP International Finance Company B.V.
Barito Pacific Timber (P.T.)
Bayan Telecommunications, Inc.
Centaur Mining & Exploration Limited
Fujian International Trust & Investment Corporation
Harris Scarfe Holdings Limited
Domain
Korea
Indonesia
Thailand
Malaysia
Hong Kong
Korea
Indonesia
Singapore
Thailand
Indonesia
Indonesia
Indonesia
Korea
Taiwan
Hong Kong
Thailand
Malaysia
Thailand
Hong Kong
Indonesia
Philippines
Thailand
Australia
Korea
Korea
Indonesia
Korea
Hong Kong
Korea
China
Korea
Thailand
Korea
Korea
Korea
Malaysia
Thailand
Korea
China
Thailand
Korea
Korea
Korea
Korea
India
Korea
Hong Kong
Thailand
China
Indonesia
Singapore
Indonesia
Indonesia
Philippines
Australia
China
Australia
Defaulted Amount Rated
($ million)
Issuer?
$45
$150
$7
$144
$86
$258
$170
$12
$31
$9
$0
$140
$1,264
$1
$150
$80
$175
$90
$119
$185
$23
$587
$185
$181
$2,564
$225
$322
$288
$118
$273
$2,044
$81
$40
$47
$525
$57
$150
$47
$154
$68
$298
$177
$261
$16
$120
$4
$196
$60
$403
$638
$51
$464
$42
$258
$225
$120
$7
0
1
0
0
0
0
1
0
0
0
0
0
0
0
1
0
0
0
1
1
0
0
1
0
0
1
0
1
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
1
1
1
1
1
0
0
1
1
1
0
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Default
Year Company
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2002
2002
2002
2002
2002
2002
2003
2003
2003
2003
2004
2005
2005
2005
2006
2006
2006
2007
2007
2007
2008
2008
2008
2008
2008
2008
2009
2009
2009
2009
2009
2009
2009
2009
25
IFCI Limited
Indah Kiat Finance Mauritius Limited
Indah Kiat International Finance Company B.V.
Indah Kiat Pulp & Paper Corporation (P.T.)
Korea Industrial Development Company Limited
Lontar Papyrus Pulp & Paper Industry (P.T.)
Pabrik Kertas Tjiwi Kimia (P.T.)
Pasminco Limited
Pindo Deli Finance Mauritius Limited
Pindo Deli Pulp and Paper Mills (P.T.)
Pratama Datakom Asia B.V.
Sinar Mas Multifinance (P.T.)
Sunway Holdings, Inc. Bhd
Tjiwi Kimia Finance Mauritius Limited
Tjiwi Kimia International Finance Company BV
United Australia/Pacific, Inc.
Benpres Holdings Corp.
Citra Marga Finance B.V.
Glencore Nickel Pty. Limited
Hynix Semiconductor, Inc.
Medison Company Limited
Murrin Murrin Holdings Pty Ltd.
Airtrain Citylink Limited
Mosel Vitelic
Newmont Yandel Operations Limited
SK Global
Procomp Informatics Co., Ltd.
Garuda Indonesia
Megasteel Harta Sdn Bhd
Trigem Computer Inc.
BOE Hydis Technology Co.
LG Philips Displays Holdings BV
Ocean Grand Holdings Limited
Datamat Public Company Limited
Evans & Tate Ltd
Shinil Housing Co
3D-GOLD Jewellery Holdings Limited
CSM Corporatama (P.T.)
Infoasia Teknologi Global, Tbk (P.T.)
Mobile-8 Telecom Tbk
Shinsung Engineering & Construction
Transmile Air Service Sdn Bhd
ASAT Holdings Limited
Asia Aluminum Holdings Limited
Davomas Abadi Tbk (P.T.)
G Steel Public Company Limited
Greentown China Holdings Limited
MagnaChip Semiconductor LLC
Mandra Forestry Holdings Ltd.
Neo-China Land Group (Holdings) Limited
Domain
India
Indonesia
Indonesia
Indonesia
Korea
Indonesia
Indonesia
Australia
Indonesia
Indonesia
Indonesia
Indonesia
Malaysia
Indonesia
Indonesia
Australia
Philippines
Indonesia
Australia
Korea
Korea
Australia
Australia
Taiwan
Australia
Korea
Taiwan
Indonesia
Malaysia
Korea
Korea
Hong Kong
Hong Kong
Thailand
Australia
Korea
Hong Kong
Indonesia
Indonesia
Indonesia
Korea
Malaysia
Hong Kong
China
Indonesia
Thailand
China
Korea
China
China
Defaulted Amount Rated
($ million)
Issuer?
$100
$600
$350
$82
$150
$286
$19
$358
$750
$19
$260
$48
$100
$600
$200
$493
$150
$30
$300
$1,306
$34
$404
$74
$308
$300
$69
$105
$82
$435
$6
$209
$1,350
$224
$28
$16
$38
$170
$18
$8
$100
$45
$8
$150
$450
$238
$75
$361
$1,200
$195
$121
0
1
1
0
0
0
0
0
1
0
0
0
0
1
1
1
0
0
1
1
0
1
1
0
1
0
0
0
0
0
0
0
0
0
0
0
1
1
0
1
0
0
1
1
1
1
1
1
1
1
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Appendix III: Chronological List of Recovery Prices on
Rated and Unrated Asia-Pacific (ex-Japan) Corporate
Debt, 1990-H1 2009
Default Year Company
1990
1990
1990
1997
1997
1997
1997
1998
1998
1998
1998
1998
1999
1999
1999
1999
1999
1999
1999
2000
2000
2000
2000
2000
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2002
2002
2002
2003
2006
2007
2008
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
26
Fairfax (John) Group Pty, Ltd.
Fairfax (John) Group Pty, Ltd.
Linter Textile Corporation
Australis Holdings Pty Limited
Australis Media Limited
Burns, Philp & Company Limited
Hanbo Steel Industry Co.
FSW International Finance Company B.V.
Polysindo International Finance Company B.V.
Polysindo International Finance Company B.V.
Polysindo International Finance Company B.V.
Polytama International Finance B.V.
Cathay International Limited
Daewoo Corporation
Guangdong Enterprises (Holdings) Ltd.
Guangdong Enterprises (Holdings) Ltd.
P.T. Inti Indorayon Utama
Singer Company N.V.
Tri Polyta Finance B.V.
Greater Beijing First Expressways Limited
Greater Beijing First Expressways Limited
Panda Global Energy Company
Zhu Hai Highway Company Limited
Zhu Hai Highway Company Limited
APP China Group Limited
APP International Finance Company B.V.
Centaur Mining & Exploration Limited
Fujian International Trust & Investment Corporation
Indah Kiat Finance Mauritius Limited
Indah Kiat International Finance Company B.V.
Indah Kiat International Finance Company B.V.
Pindo Deli Finance Mauritius Limited
Pindo Deli Finance Mauritius Limited
Pindo Deli Finance Mauritius Limited
Tjiwi Kimia Finance Mauritius Limited
Tjiwi Kimia International Finance Company BV
United Australia/Pacific, Inc.
United Australia/Pacific, Inc.
Hynix Semiconductor, Inc.
Hynix Semiconductor, Inc.
Murrin Murrin Holdings Pty Ltd.
Newmont Yandel Operations Limited
LG Philips Displays Holdings BV
Evans & Tate Ltd
3D-GOLD Jewellery Holdings Limited
ASAT Holdings Limited
Asia Aluminum Holdings Limited
Davomas Abadi Tbk (P.T.)
Davomas Abadi Tbk (P.T.)
Greentown China Holdings Limited
MagnaChip Semiconductor LLC
MagnaChip Semiconductor LLC
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor S.A.
Neo-China Land Group (Holdings) Limited
Recovery Price
Instrument
21.50
21.50
89.30
46.00
30.00
89.00
82.50
20.00
27.00
26.00
26.00
28.00
43.13
82.50
97.19
30.92
15.00
17.50
32.50
28.00
26.00
45.00
24.00
50.00
12.50
20.00
19.00
37.00
20.00
28.00
27.00
15.00
14.00
16.00
24.00
14.00
4.13
4.13
66.04
80.40
28.13
50.00
47.25
0.32
7.00
1.38
7.00
17.00
17.00
85.00
2.88
0.01
2.88
2.88
0.01
63.00
SUB
SUB
SUB
Sr. Secured
Sr. Unsecured
Sr. Unsecured
SUB
Sr. Secured
Sr. Secured
Sr. Secured
Sr. Secured
Sr. Secured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Secured
Sr. Unsecured
Sr. Unsecured
Sr. Secured
SUB
Sr. Secured
Sr. Unsecured
Sr. Secured
Sr. Secured
Sr. Unsecured
Sr. Unsecured
Sr. Secured
Sr. Secured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Secured
Sr. Secured
Sr. Secured
Sr. Unsecured
Sr. Secured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Unsecured
Sr. Secured
Sr. Secured
Sr. Unsecured
Sr. Secured
SUB
Sr. Secured
Sr. Secured
SUB
Sr. Unsecured
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Appendix IV: Statistics for Asia-Pacific Including Japan
Average One-Year Rating Migration Rates for Asia-Pacific (including Japan)
and Japan, 1990-H1 2009
Asia-Pacific including Japan
Rating to:
Rating from:
Aaa
Aa
A
Baa
Ba
B
Caa-C
D
WR
Aaa
79.90%
15.03%
0.12%
0.03%
0.00%
0.00%
0.00%
0.00%
4.92%
Aa
1.26%
85.20%
7.84%
0.06%
0.01%
0.00%
0.00%
0.00%
5.63%
A
0.24%
2.91%
85.53%
4.86%
0.99%
0.05%
0.00%
0.00%
5.41%
Baa
0.00%
0.03%
6.48%
82.35%
3.40%
0.61%
0.22%
0.09%
6.81%
Ba
0.00%
0.00%
0.04%
9.53%
75.05%
5.68%
1.58%
0.69%
7.42%
B
0.00%
0.00%
0.00%
0.00%
13.10%
66.42%
6.42%
4.42%
9.63%
Caa-C
0.00%
0.00%
0.00%
0.08%
0.55%
9.71%
62.75%
16.34%
10.58%
Aaa
Aa
A
Baa
Ba
B
Caa-C
D
WR
Aaa
80.55%
14.38%
0.23%
0.08%
0.00%
0.00%
0.00%
0.00%
4.77%
Aa
0.74%
84.30%
10.65%
0.05%
0.00%
0.00%
0.00%
0.00%
4.27%
A
0.48%
3.01%
85.66%
5.28%
0.17%
0.00%
0.00%
0.00%
5.41%
Baa
0.00%
0.00%
5.07%
85.80%
2.63%
0.25%
0.09%
0.00%
6.17%
Japan
Rating to:
Rating from:
27
Ba
0.00%
0.02%
0.05%
8.34%
79.66%
5.23%
0.18%
0.35%
6.18%
B
0.00%
0.00%
0.00%
0.00%
11.92%
72.99%
1.23%
0.26%
13.60%
Caa-C
0.00%
0.00%
0.00%
0.00%
2.40%
7.20%
66.40%
0.00%
24.00%
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Asia-Pacific (including Japan) and Japan Issuer-Weighted Cumulative Default
Rates, 1990-H1 2009
Asia-Pacific
including Japan Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9 Year 10
Aaa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Aa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
A
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Baa
0.096%
0.239%
0.422%
0.691%
0.937%
1.100%
1.159%
1.159%
1.159%
1.159%
Ba
0.720%
1.874%
3.163%
4.691%
5.991%
6.779%
7.060%
7.266%
7.266%
7.266%
B
4.645%
8.422%
12.944%
17.404%
20.265%
23.479%
28.569%
28.569%
28.569%
28.569%
17.250%
33.907%
49.100%
54.028%
55.871%
55.871%
55.871%
55.871%
55.871%
55.871%
Investment Grade
0.033%
0.082%
0.145%
0.239%
0.325%
0.380%
0.399%
0.399%
0.399%
0.399%
Speculative Grade
2.965%
5.880%
8.835% 11.119% 12.671% 13.697% 14.460% 14.631% 14.631% 14.631%
All Latin America
0.561%
1.114%
1.671%
2.127%
2.446%
2.650%
2.777%
2.800%
Caa-C
Japan
2.800%
2.800%
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Aaa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Aa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
A
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Baa
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Ba
0.363%
0.833%
1.347%
1.919%
2.462%
2.844%
3.311%
3.655%
3.655%
3.655%
B
0.278%
0.278%
0.278%
0.278%
0.278%
0.278%
0.278%
0.278%
0.278%
0.278%
Caa-C
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
…
…
…
Investment Grade
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
0.000%
Speculative Grade
0.340%
0.714%
1.134%
1.614%
2.083%
2.426%
2.853%
3.170%
3.170%
3.170%
0.054%
0.114%
0.180%
0.256%
0.327%
0.376%
0.432%
0.470%
0.470%
0.470%
All Global
Year 9 Year 10
* Speculative-grade estimates for Japan are based on an extremely limited sample size as there are very few speculativegrade issuers in Japan.
28
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Special Comment
Moody’s Global Credit Policy
Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009
Report Number: 119158
Author
Production Associate
Elena Duggar
Judy Yuen
CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S (MIS) CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT
COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL,
FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS
ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT
STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS
ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF
AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH
INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
© Copyright 2009, Moody’s Investors Service, Inc., and/or its licensors and affiliates (together, "MOODY'S”). All rights reserved. ALL INFORMATION CONTAINED
HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED,
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and Shareholder Affiliation Policy.”
29
August 2009 „ Special Comment „ Moody’s Global Credit Policy - Default and Recovery Rates of Asia-Pacific Corporate Bond and Loan Issuers, Excluding Japan, 1990-H1 2009