Positive rating action on 50 high-yield corporate issuers rated by Fitch Ratings reappeared during 2Q21, but was offset by an ongoing large number of negative rating action. Fitch expects negative rating action to continue in 2H21, but at a slower pace, and to be countered by an increase in positive action.
The quarter saw six downgrades and four upgrades, after six downgrades and no upgrades in 1Q21. The portfolio’s rating Outlook distribution now shows six Positive Outlooks, compared with none in 1Q21. In addition, the Outlook on two corporates was revised to Stable, from Negative. However, the Outlook on five corporates was revised to Negative.
Improving fundamentals was the main factor driving the upgrades. The ratings of China-based department store operator, Golden Eagle Retail Group Limited, were upgraded to ‘BB+’/Stable, from ‘BB’/Stable, after the company reported higher revenue and EBITDA for 2020, despite significant disruption to its business operations in 1H20.
We also took positive rating action across Indian steel companies, following a significant improvement in margins and financial profiles in the financial year ended March 2021 (FY21). This was driven by a faster recovery in the global steel market from the impact of the pandemic than we expected. Steel sales volume in FY21 was also resilient, helped by higher exports.
Net issuance of cross-border bonds turned negative during 2Q21, after being on a downward trend since 2019. This was led by Chinese homebuilders, including China Evergrande Group, which we downgraded to ‘B’/Negative, from B+/Stable, after it repaid bonds without any new issues.
The special report, “Asia Corporate High-Yield 50: June 2021”, contains charts depicting rating activity, Outlooks, cross-border bond issuance, pending maturities, indicative funding costs, cash flow, liquidity trends and pre- versus post-pandemic leverage and coverage forecasts. The report is available by clicking on the link above.
Source: Fitch Ratings