S&P sees more APAC firms risk falling into junk territory, manufacturers included

Chinese automaker Geely and Korean chip supplier SK Hynix are newcomers in the potential fallen angels category.

S&P Global Ratings said more companies in Asia Pacific risk becoming fallen angels in the coming year, including major manufacturers Geely Automobile Holdings and Semiconductor Manufacturing International Corp. (SMIC) from China, as well as South Korea’s SK Hynix.

The rating agency estimated about 26 firms in Asia Pacific with about $204b of debt are at risk of being reduced to junk status or becoming potential fallen angels over the next 12 months.
Fallen angels are issuers recently downgraded from investment grade (BBB- and above) to the speculative grade territory (rated BB+ and below), while potential fallen angels are those rated BBB- with either a negative outlook or on creditwatch with negative implications.

“The risk of Asia-Pacific corporate issuers falling into speculative grade remains elevated through 2024,” S&P said. “The culprits include high legacy leverage and expansionary financial policies. Flagging earnings, especially for exporters, and governance considerations are also potential triggers.”

For companies with BBB ratings in APAC, those in the technology, infrastructure, automotive and utilities sectors are the most exposed to credit deterioration due to hefty capital spending, weak local and export demand and high inflation.

S&P said about 14 issuers with about $113b in total debt could become fallen angels in the next 12 months, “barring a sustainable pick-up in profits, slowing capital spending or credible balance sheet consolidation measures.”

The potential fallen angels in the manufacturing sector are China’s biggest chipmaker, SMIC which has $8.6b in reported debt, as well as SK Hynix, the second-biggest memory chip maker in South Korea with $19.1b in debt.

Hangzhou-based automaker Geely Auto with debt of $1.6b, alongside its parent firm Zhejiang Geely Holding Group Co. which carry a staggering $23.8b debt, are also at risk of falling into junk territory.