Taiwan's top corporates continue to strengthen amid lingering risks in China: S&P

TAIPEI - China's slowing economic growth and excess capacity in some industry sectors remain the key credit risks for Taiwan corporates over the next year, according to Taiwan Ratings Corp., a subsidiary of Standard & Poor's. The report, covering Taiwan's top 50 corporates by revenue in 2013, says Taiwan’s retail, semiconductor, and telecom sectors have the strongest credit profiles among the top 50, while transportation, cyclical, and metal companies have the weakest.

Taiwan's high-tech firms maintain stronger financial risk profiles than
their non-tech counterparts' in the study. The ratings agency says this is because the more conservative debt-usage policies of high-tech firms help them respond to fast-changing operating areas, which has helped protect their creditworthiness.

Taiwan Ratings expects the top 50 corporates to mostly improve their profitability during the next 12 to 18 months. A gradually strengthening
global economy and lower commodity prices helped bolster economic activity in Taiwan in recent quarters, signalling an upturn in prosperity for
export-dependent corporates,but not all corporate players are out of danger,” the report says.

"We believe a greater slowdown in Chinese growth than under our base-case
scenario could weaken the credit ratios and profitability in sectors with a
higher revenue concentration in neighbouring China," said Director of corporate ratings, Daniel Hsiao. "Taiwan's steel and chemical
companies are especially vulnerable to China's economic growth rate due to the build-up of excess capacity over the past few years."

The report also notes the threat to Taiwanese companies' credit profiles from the growth of Korean competitors, particularly if a free trade agreement between Korea and China is implemented as planned, without a similar agreement between Taiwan and China in place. Taiwanese and Korean players in the chemical, steel, and thin-film-transistor liquid crystal display panel sectors have been competing heavily in the region for many years.

"Nevertheless, we believe that Taiwan's competitive banking sector and strong liquidity in the domestic financial market provide a short-term liquidity buffer for larger corporates," added Hsiao. "The low cost of holding cash also helps Taiwan’s largest companies maintain high cash balances and stronger liquidity to weather downturns."

Though the future profitability and creditworthiness of Taiwanese corporates rests on a number of factors, better trade agreements with China would help many corporates maintain their competitive edge, while greater product differentiation and stronger technology barriers could help restrict long-term competition, the report notes. www.taiwanratings.com.tw