Fitch Highlights Volatility of Market-Implied Ratings in APAC

Mon Jun 23, 2014 7:01pm EDT

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: APAC Corporate Ratings Versus Market-Implied Ratings here SYDNEY/SINGAPORE, June 23 (Fitch) In a new report Fitch Ratings highlights potential reasons for the high level of volatility for Asia-Pacific Corporates when examining notch differentials between average Issuer Default Ratings (IDR) and Fitch Solutions' Credit Default Swap Implied Ratings (CDS IR) on a sector or country basis. The report contains details of the key rating driving factors for 35 APAC Corporates whose IDRs differ by two or more notches from their respective CDS IRs. It also shows IDR vs CDS IR Hit-Miss Matrices for APAC, EMEA and the Americas. Fitch Ratings' IDRs are driven by fundamental credit analysis on a through-the-cycle (TTC) basis. Derived from CDS spreads, CDS IRs are by design more affected by market over reaction and the impact of changing market sentiment than TTC IDRs, limiting the effectiveness of CDS IRs as risk-assessment tools for longer-term investors. The market tends to rate names temporarily performing well higher, and those performing poorly lower than Fitch's IDRs. For example, the market rates Samsung Electronics two notches higher and BHP three notches lower than Fitch's IDRs. Fitch Ratings' average Long-Term IDR of 'A-' was one notch higher than Fitch Solutions' average CDS IR of 'BBB+' in May 2014, based on the 67 Fitch-rated APAC corporates which also have CDS IRs. However, Fitch's average IDR has been stable compared with significant swings in the average CDS IR. In contrast the report shows that average EMEA and Americas corporate CDS IRs have been consistently above their respective average IDRs since 2008. The smaller overlapping IDR and CDS IR count of 67 for APAC corporates, versus 111 for EMEA and 317 for the Americas, is a major factor behind the higher volatility in APAC. In addition lower CDS liquidity in APAC compared with other markets tends to result in CDS spreads that are less indicative of current market sentiment, and subsequently CDS IRs that are less aligned with IDRs. Contacts: Matt Jamieson Head of APAC Research Corporate Ratings Group +61 2 8256 0366 Level 15, 77 King Street, Sydney NSW 2000, Australia. Andrew Steel Regional Managing Director Head of Asia Pacific Corporate Ratings Group +65 6796 7231 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Leni Vu, Sydney, Tel: +61 2 8256 0326, Email: Leni.Vu@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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