Mumbai: Default rates among non-Japanese Asian companies are at record lows, according to a report released today by Standard & Poor's Ratings Services. The report, titled Annual 2005 Asia Corporate Default Study And Rating Transitions, says the default among rated Asian companies (including banks and insurers) stood at 0.28 per cent at the end of 2005 compared with 0.6 per cent globally.

The report notes that only one rated Asian company defaulted in 2005 and none in 2004. Corporate defaults in Asia peaked at 7.32 per cent in 1998, at the height of the Asian financial crisis.

"At the moment there is plenty of good news supporting the market," notsJohn Bailey, managing director, Corporates and Infrastructure, Standard & Poor's Asia. "Economic conditions are strong and corporate profitability is growing," he added.

Debt issuance is likely to be strong as capital expenditure needs, refinancing requirements, and merger and acquisition activity drives primary bond issuance.

But despite the good news, there are some clouds on the horizon. "There is a nagging fear that a recent in low-grade issuance could lead to a gradual increase in default rates over the long term," said Terry Chan, director and credit officer, Standard & Poor's Asia-Pacific. "Increased issuance in the 'BB' to 'B' rating
categories is usually a harbinger of future defaults," he added.

Bailey said, "There is a growing perception that rising interest rates could also take their toll on the market. Consequently, a higher incidence of default is likely in 2007. In other words, the Asian default is lagging a year behind the corresponding rise in default in the US expected in 2006."