S&P: Asia-Pacific to account for half of world's corporate debt in 5 years

Companies in Asia-Pacific may contribute half of the world's corporate debt issuance in 2017, with China alone comprising third of global demand for loans, as the region's economy continues hurtling forward, Standard & Poor's Ratings Services (S&P) said Thursday. 

 

In a report titled “The Credit Cloud: China and Asia-Pacific's Great Wall of Debt Will Tower Over North America and Europe's,” the debt watcher said, “Asia-Pacific's corporates will contribute half of the world's demand for $49 trillion-$53 trillion in new and refinancing of corporate loans and bonds over 2013 to 2017.”

 

S&P sees Asia-Pacific's non-financial firms seeking between $25 trillion and $27 trillion in new and refinancing of loans and bonds over the five-year period, enlarging the region's outstanding corporate debt to $30 trillion to $32 trillion by 2017. 

 

The report projects total corporate debt in North America, eurozone, and U.K. to hit around $30 trillion to $31 trillion by 2017. 

 

“This credit surge will hinge on the region's continued economic growth,” the report read. 

 

The 10 Asia-Pacific economies included in the study—Japan, China, Australia, Hong Kong, India, Indonesia, Korea, Malaysia, Singapore, and Thailand—will expand between 2.3 percent and 13.4 percent over the five-year period. 

 

With China contributing much to the region's economic growth, S&P said Beijing corporates will also seek for more financing. 

 

The report noted: “China alone will comprise a third of global demand” at $17.57 trillion by 2017. 

 

“China's credit surge will propel Asia-Pacific's corporate debt to levels exceeding the combined debt of Western countries comprising the US, Canada, eurozone (European Economic and Monetary Union), and UK,” S&P credit analyst Terry Chan said in a statement tied to the report. 

 

The report, however, warned that massive accumulation of debt raises the risk of worsening credit quality, particularly in China.

 

“Given China's rapid credit pace, it is not surprising that we are seeing some cracks in the country's corporate debt wall in the form of rising nonperforming loans, albeit such loans remain at manageable levels,” Chan said.  

 

“We believe the country's loan asset quality could deteriorate further because of the banks' heavy exposure to lackluster export growth, debt-laden local government financial platforms, and an almost widespread manufacturing oversupply,” he added. — Sieg Alegado/VS, GMA News