Headline: Standard & Poor's warns of increasing corporate defaults in Asia

Source: Associated Press, 11 May 2001

URL: via www.nandotimes.com

The number of corporate defaults in Asia and elsewhere is soaring and the situation will get worse as world economic growth slows, the international credit ratings agency Standard & Poor's warned Thursday.

The default on $11 billion in debt by Singapore-based Asia Pulp & Paper in March likely will be followed by defaults by other Asian corporations hit by the slowdown in demand for their exports, said Paul Coughlin, Standard & Poor's Asia-Pacific managing director for corporate ratings. "We expect that during at least the next several years we'll see increasing defaults," Coughlin told reporters.

The New York-based rating agency said it recorded 48 corporate defaults on a total of $37 billion of debt in the first quarter of 2001, compared with 117 defaults on debt valued at $42.3 billion in all of 2000. Defaults this year by APP; Bayan Telecommunications Inc., the Philippines' second-largest fixed-line telephone carrier; Indonesian media company Datakom Asia and China's Panda Global Energy Co. are omens of worse to come, Coughlin said. He said the rise in defaults reflects economic trends, the performance of various industries and the quality of management of individual companies.

The need for improved corporate governance -- good accounting practices, transparency in business dealings and independent board members -- was cited as a key concern by executives attending a global economic conference in Hong Kong this week. "For Asians' own good, in the long term they must have good corporate governance," said Ronnie Chan, chairman of Hong Kong-based property developer Hang Lung Group, at the Fortune Global Forum.

J. Mark Mobius, president of Templeton Emerging Markets Fund, said troubles with poor management were especially pronounced in the Philippines, Thailand and Indonesia, where international standards such as independent corporate boards and financial disclosure have yet to take hold. "There's no incentive for one company to obey the rules of corporate governance when nobody else is," Mobius said.

Coughlin noted a number of defaults in China resulted largely from investors' disappointment with poor management. Throughout the region, failure to follow through on reforms begun during the Asian financial crisis has left banking systems weak and burdened with huge debts. "We do think that corporate governance is something that should be monitored a lot more closely than it has been in the past," said John Bilardello, head of Standard & Poor's corporate ratings department. "We see Asia as a region where there are significant differences in the styles of corporate governance from company to company."

During the Asian financial crisis, which began in 1997, exports to the fast-growing U.S. economy kept many companies afloat. That option no longer exists. In the case of New York-listed APP, a sharp drop in pulp and paper prices, unexpectedly poor performance by some of its factories - scattered throughout Indonesia, China and India - and an inability to raise more financing led to default.

Apart from the four companies that have already defaulted in Asia, Standard & Poor's rates another 11 in the region as currently vulnerable or highly vulnerable. "In terms of defaults, it's obviously the weaker companies and those who are exposed more to the electronics industries that are going to have a harder time," Coughlin said.

-- Andre Weltman (aweltman@state.pa.us), May 11, 2001