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Many Asia-Pac corporates can withstand impact from China's slowdown: Moody's

Wednesday, September 23, 2015 - 17:05

MOST of the non-Chinese, non-financial corporates Moody's Investors Services rates in Asia-Pacific can withstand the impact from China's economic slowdown, supported by their businesses outside the country and existing financial cushions. This includes Singapore-listed companies such as China Fishery, Hutchison Port Holdings Trust (HPHT) and several real estate investment trusts (Reits).

Most exposed to China are corporates in the metals and mining, coal, oil and gas, steel, chemical, auto, technology and agriculture sectors, said Moody's on Wednesday. Corporates with modest exposure are those in the business and consumer services, gaming, manufacturing, port, real estate, retail, shipping and trading sectors. Exposure is low for airports, homebuilding and building materials, telecommunications and utility sectors, as these sectors tend to derive their revenues domestically.

Moody's has slightly revised its gross domestic product growth forecast for China in 2016 to 6.3 per cent and maintained its forecast of 6.8 per cent for 2015. In subsequent years, the growth is likely to slow towards 6 per cent. "While this represents a significant slowdown over prior years, the growth rate remains well ahead of most other developed countries, and further policy support is likely to ensure that the economic slowdown remains gradual," it pointed out.

Two Singapore-listed companies with large China exposure - more than 50 per cent - but expected to be resilient are China Fishery and HPHT.

China Fishery (B2 stable) is one of the largest fishmeal and fish-oil producers in Peru and sells products to China, the rest of Asia, West Africa, Europe and South America, said Moody's.

In the nine months ended June 28, 2015, the company generated 70 per cent of its revenue from China. The rating is constrained at the B2 level because of the volatile supply given the Peruvian government's regulatory controls over annual fishing quotas, which in turn affect global average selling prices.

The global demand for fishmeal and fish oil has been resilient, as shown in steadily rising prices for both products in the last few years, Moody's said.

HPHT (Baa1 stable) operates port assets in Hong Kong and Shenzhen, China. HPHT generated 58 per cent of its revenue from the mainland in 2014.

"As a key transshipment hub for the region, we expect that a material portion of the Hong Kong throughput is China-related. Although we expect HPHT's throughput growth to slow as a result of the economic slowdown, our base case assumption is still positive growth of 2 per cent for the next two years. We expect HPHT's performance to be resilient owing to tariff increases and higher US-related throughput stemming from improved economic growth in the US," said Moody's.

OUE Commercial Real Estate Investment Trust (Ba1 stable) has a portfolio of two properties - OUE Bayfront in Singapore and Lippo Plaza in Shanghai. Lippo Plaza contributed some 37 per cent of the trust's revenue during the first half of 2015. However, Moody's expects the trust's revenue exposure to China to fall below 20 per cent, following the completion of its acquisition of One Raffles Place in Singapore by year-end 2015. Although close to 50 per cent of Lippo Plaza's leases will expire in 2016, it is likely that the trust will renew the bulk of them given the strategic location of the property, Moody's said.

Ascott Residence Trust (Baa3 stable) generated 18 per cent of its H1 2015 revenue from China. However, Moody's expects the trust's exposure to China to decline to 16 per cent by year-end 2015, following recent acquisitions in Australia, Japan and the US. "The portfolio's geographic diversity mitigates concentration risk from any single economy," it noted.

Mapletree Greater China Commercial Trust (Baa1 stable) has two China properties - Gateway Plaza (Beijing) and Sandhill Plaza (Shanghai). These two properties contributed 28 per cent for the first quarter (April-June) of the current fiscal year. The China exposure will increase to around 30 per cent by the March 31 end of the fiscal year owing to the full consolidation of Sandhill Plaza, which the trust acquired in June 2015. Still, Moody's said it expected the revenue from the two Chinese assets to remain stable over the next two years given the low proportion of lease expiries over this period.

Continued volatile profitability is expected at Golden Agri-Resources Ltd (GAR, Ba3 negative) which has a deep-sea port and interests in edible oil refining and marketing (including palm oil imported from Indonesia) in China, as well as noodle manufacturing and distribution. "Profitability remains volatile as a result of overcapacity in the oilseed-crushing industry, chiefly soyabean processing," it said. Twenty two per cent of GAR's revenues in 2014 were from customers in China, with oilseed sales alone accounting for half.

Moody's also noted Temasek Holdings' (Aaa stable) exposure to China which made up 27 per cent of its net portfolio value as of March 31, 2015. Temasek's listed Chinese investments benefited from the run-up in stock markets in Q1 2015. Its holding in China Construction Bank Corporation was the third-largest holding in its portfolio on March 31, 2015, worth about S$14 billion and representing 6 per cent of its net portfolio value.

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