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Cambodia: Kingdom isolated from highest credit defaults

Moody’s Investor Service reported the pandemic boosted corporate defaults in emerging markets (EM) to 7.7 percent in March, but that figure is projected to fall to 4 percent by year-end.

“The recovery is likely to be uneven across EM countries and, thus, default rates will vary between countries. A resurgence of virus infections, slow vaccinations, global market turbulence and domestic policy factors would pose risks to our forecasts,” the ratings agency said.

Cambodia seems relatively safe from major corporate defaults because Moody’s did not list any local firms having defaulted in its report. Argentina, South Africa and India had the worst rating drifts among EMs last year, while Indonesia had the highest in ASEAN.

“The recovery in EMs remains fragile, which poses material downside risks to our baseline assumptions. In many large EM countries, pandemic containment could take longer than anticipated and vaccination rollout may be slower than planned. This poses risks to health and raises the prospects of recurring lockdowns, which would undermine gathering economic momentum,” Moody’s said.

As of yesterday, Cambodia had registered nearly 16,000 infections because of the Feb 20 event, resulting in curfews, travel restrictions and lockdowns.

The International Monetary Fund (IMF) previously downgraded the Kingdom’s real gross domestic gross product growth forecast from 7 percent to 4.2 percent. The IMF also warned of uneven recoveries – particularly among tourism-dependent countries, including Cambodia.

Jonathan Ostry, deputy-director at the IMF’s Asia and Pacific Department, previously said his office was concerned regarding the outlook for the Kingdom considering additional lockdowns and containment measures, which may further disrupt economic growth this year. However, an analyst said that if defaults occur in Cambodia, they would be isolated to outside bond listings on the Cambodia Securities Exchange (CSX) and occur in the hospitality or microfinance sectors.

Six firms have bonds on the Cambodian Securities Exchange (CSX). Four of them are microfinance institutions or banks – PRASAC Microfinance Institution Plc, Hattha Kaksekar Ltd, Advanced Bank of Asia and LOLC (Cambodia) Plc, with the former offering the highest coupon rate of 9 percent annually for a three-year term set to mature in April next year.

“If you look at LOLC’s financials for last year, you’ll see that they registered over $44 million in profit last year and paid $2.2 million over the last two years for its bond issuance. At its current rate, it may take about another 17 or 18 years to pay off the loans, but the company has solid financial banking,” he said.

Noting the high amount of restructured loans made at banking houses at the behest of the National Bank of Cambodia (NBC), he said it was unlikely that any large microfinance institutions will default on their loans, but smaller players may end up going under – particularly those focusing on clients in the agriculture sector.

Moody’s found that 28 EM firms defaulted in 2020 – slightly higher than the 25 following the 2008 Financial Crisis. However, as defaults in advanced economies fell for the fourth consecutive month, EM rates continued to climb, exceeding those in advanced markets in February. Currently, the Asia-Pacific region leads the globe in the number of defaults.

“Compared with advanced markets, EMs incurred greater disruption in economic activities and financial markets. In many EM countries, healthcare systems and social safety nets are generally not as expansive as in advanced markets… the deterioration in financial conditions from long-term averages was much more significant in EMs than in the advanced markets at the start of the pandemic,” Moody’s said.

Source: https://www.khmertimeskh.com/50852337/kingdom-isolated-from-highest-credit-defaults/