Two companies rated by S&P Global Ratings defaulted in Greater China (China, Hong Kong, Macau, and Taiwan) in 2018, up from one in 2017. The tally of corporations rated by S&P Global Ratings in Greater China continued to grow rapidly in 2018, adding 82 issuers for a total of 597, up by 16% from 2017. Ratings in Greater China continue to lean toward investment grade ('BBB-' or higher), with a median rating of 'BBB', higher than the median rating of 'BB' in the U.S.
Approximately 81.1% of 'BBB' rated issuers in Greater China did not experience rating changes within one year, on average, between 2000 and 2018, compared with about 77.7% of 'BBB-' rated issuers and 64.7% of 'BB+' rated issuers. This performance, along with our expectation for a slowdown in growth but growth nonetheless in the Chinese economy, contributes to our expectation for balanced credit quality among rated issuers in Greater China this year.
As of the end of 2018, 66.8% of rated companies in Greater China were rated investment grade, compared with 49.8% globally, 42.6% in the U.S., and 57.3% in Europe. This is particularly important in China because ratings also correspond strongly to the cost of debt: The higher the rating, the lower the cost of debt. Comparatively low debt servicing costs for issuers in Greater China allow for more options for managing fiscal discipline amid expected declines in economic growth.
In this study, we examined the ratings performance of 946 Greater China-based issuers rated by S&P Global Ratings since 2000. Entities included in this study are those with business operations in Greater China, regardless of the market in which they are incorporated. In a number of instances, entities included in this study incorporated in foreign tax havens like the Cayman Islands. While S&P Global Ratings did rate issuers in Greater China prior to 2000, we limited the scope of analysis to issuers rated from 2000-2018 to allow more meaningful conclusions to be drawn. The statistics we present in this study refer only to the corporate ratings universe, which includes financial and nonfinancial entities in Greater China. Our methodology and the definitions of the terms we use in this study are in Appendix I.
In line with global trends, ratings continued to serve as effective indicators of relative credit risk in Greater China in 2018. Our study of corporate defaults in Greater China identified a clear negative correspondence between ratings and defaults: The higher the issuer credit rating, the lower the observed default frequency.
The one-year Gini ratio--a measure of the ability of ratings to differentiate relative risk--was 87.5% in Greater China in 2018. This signifies a strong correspondence between ratings and default risk. The three-year Gini ratio for Greater China was 83.43%. For comparison, the global one-year Gini ratio was 82.5%, and the global three-year Gini ratio was 75.2% (see table 1). Gini ratios are measures of the rank-ordering power of ratings over a given time horizon. They show the ratio of actual rank-ordering performance to theoretically perfect rank ordering (for details on the Gini methodology, refer to Appendix III).
Table 1
| Corporate Gini Coefficients By Region | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (%) | --Time horizon-- | |||||||||
| Region | One-year | Three-year | Five-year | Seven-year | ||||||
| Global | 82.49 | 75.16 | 71.49 | 69.40 | ||||||
| U.S. | 80.74 | 72.94 | 69.24 | 67.08 | ||||||
| Europe | 90.28 | 85.19 | 82.78 | 79.52 | ||||||
| Asia | 87.01 | 82.52 | 76.29 | 71.81 | ||||||
| Greater China | 87.45 | 83.43 | 75.48 | 70.86 | ||||||
| Notes: Asia figures are for the period 1993-2018. Greater China figures are for the period 2000-2018. Global, U.S., and Europe figures are for the period 1981-2018. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||
Our study found that higher ratings correspond with stronger ratings stability in Greater China for both state-owned enterprises (SOEs) and non-SOE issuers. The Greater China SOE 2000-2018 one-year Gini coefficient was 99.2%, the three-year was 98.7%, and the five-year was 97.9%, while the Greater China non-SOE 2000-2018 one-year Gini was 83.4%, the three-year was 79.3%, and the five-year was 70.8% (see table 2). One-year and three-year Gini ratios are slightly stronger for non-SOE issuers in Greater China than for their global counterparts (which have a one-year Gini ratio of 82.5% and three-year Gini ratio of 75.2%), whereas the five-year Gini is slightly weaker for non-SOE issuers in Greater China than for their global counterparts (which have a five-year Gini ratio of 71.5%). Overall, the ratings performance of Greater China issuers, as measured through the lens of the Gini ratios, remains higher than that of issuers in most other regions, with the exception of Europe, as shown in table 1.
Table 2
| Corporate Gini Coefficients For SOEs And Non-SOE Issuers | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (%) | --Time horizon-- | |||||||||
| Region | One-year | Three-year | Five-year | Seven-year | ||||||
| Greater China non-SOE | 83.36 | 79.34 | 70.85 | 66.00 | ||||||
| Greater China SOE | 99.15 | 98.65 | 97.89 | 97.03 | ||||||
| Note: Greater China figures are for the period 2000-2018. SOE--State-owned enterprise. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||
Considering Greater China's comparatively high proportion of investment-grade companies, along with its strong Gini ratio and high stability rate, we believe that issuers rated by S&P Global Ratings will continue to perform well, with comparatively low default and stable transition rates. Although increased downgrades and defaults in the region are still possible if economic and geopolitical conditions deteriorate, issuers in the 'AA', 'A', and 'BBB' categories are overall better equipped for such conditions and outnumber those in the 'B' and 'CCC' categories, where the majority of downgrades and defaults would likely be concentrated. Globally, downgrades and defaults typically come from these low rating categories.
China's Financing Conditions Remain Supportive
In 2018, China's policymakers took moderate steps to boost activity as GDP growth hit a 28-year low and bank-funding costs were down. The steady lending rates in China and trade tensions between the U.S and China, which continue to hamper global trade and investment, caused fluctuations in Greater China's financing conditions in 2018 (see "Global Conditions Are Tightening As Trade And Economic Worries Mount," Dec. 5, 2018).
Issuers tend to issue longer-term debt to take advantage of this lower cost of capital when they anticipate rising interest rates. Investment-grade issuers in Greater China averaged seven years for their new issuance terms, compared with just four years for speculative-grade (rated 'BB+' or lower) issuers. This lower cost of financing and longer maturities help issuers mitigate default risk as well as stabilize transition rates.
China has been carefully balancing its economic growth with the significant growth of its debt burden over the past few years. After years of policymakers pondering how to lower the debt burden without triggering unintended consequences that could destabilize the economy or the financial system, the debt-to-GDP leverage ratio decreased (even if only slightly) in 2018, for the first time since 2011 (see chart 1). By the middle of 2018, signs that the domestic-driven slowdown was intensifying began to emerge, though financial conditions began to ease in the second half of 2018. So far, the scale of easing has indeed been more careful than in earlier cycles, in an attempt to forestall another rapid rise in debt-related vulnerabilities. However, it should be enough to stabilize growth through late 2019.
Chart 1
More broadly, trade will drag growth throughout 2019 in Asia, even if the U.S. and China strike a deal in their trade negotiations. Lingering tensions, especially surrounding technology and global sectors such as autos, will persist notwithstanding a U.S.-China deal. Asia remains highly exposed, and economies will need to rely more on domestic demand to support growth (see "Credit Conditions: Central Banks' Caution Bolsters Borrowing Conditions," April 1, 2019).
According to the latest capital flows report from the Institute of International Finance (IIF), amid the slower growth and stable capital flows in the overall emerging markets, China's economy and balance of payments are going through profound changes. Real GDP growth slowed to 6.6% in 2018, the lowest in 28 years (see "Capital Flows Report: The EM Positioning Overhang," IIF, April 5, 2019).
S&P Global economists remain comfortable with a 6.2% growth forecast for official GDP in 2019. This implies 6.2% growth in the second half. Although the easing in financial conditions may have peaked, there is enough stimulus in the pipeline to stabilize activity. While the property market may soften from here, infrastructure investment is expected to pick up and consumption growth should steady (see "Asia-Pacific Monthly Snapshots: What To Watch On Trade," July 24, 2019).
Rated Issuers In Greater China Continue To Increase
The number of ratings in Greater China has grown rapidly, particularly in the 'A' and 'BBB' categories. Just 70 issuers were rated at the beginning of 2000, compared with 597 by the end of 2018.
In 2018, 124 new corporate issuers in Greater China came to market, up from 101 newly rated issuers in 2017, and the total number of rated issuers in Greater China increased by 16% from year-end 2017 to year-end 2018. The new issuers in 2018 were predominantly rated in the 'BBB' rating category, which was an improvement from 2017, when the 'B' category was most common for new issuers. Although the share of investment-grade ratings among the total fell slightly, to 66.8% in 2018 from 68.9% in 2017, the absolute number of overall investment-grade ratings in Greater China grew by 12.4% (see chart 2).
Chart 2
Upgrades Outpaced Downgrades, And Defaults Remained Low
Using a static pool methodology (see Appendix I for details), upgrades led rating actions in Greater China in 2018, whereas in 2017, downgrades led in the region after the lowering of the sovereign credit rating on China in September 2017. There were 32 downgrades and 43 upgrades in Greater China in 2018 (see chart 3), yielding a downgrade-to-upgrade ratio of 0.74 to 1, though this belies downgrades outpacing upgrades in absolute terms (that is, not using the static pool methodology, but instead counting each rating action from the start to the end of the year) in 2018. Generally, issuers in Greater China, especially those without an SOE relationship, felt downward pressure on their ratings due to an ongoing economic slowdown in China. This ratio compares with 2.2 to 1 in 2017 and an average of 2.1 to 1 during 2000-2017.
Despite the recent downgrades, credit quality in Greater China remains relatively strong. The number of defaults rose to two in 2018 from just one in 2017 but remains lower than the past-16-year peak of six defaults in 2015. For comparison, the global tally of defaults dropped to 82 in 2018 from 95 in 2017.
Chart 3
All of our default studies have found a clear correlation between S&P Global Ratings' credit ratings and defaults: Over every time horizon, lower ratings correspond to higher default rates (see chart 4). We found this holds true across regions. As the Gini ratios show, the ability of corporate ratings to effectively measure relative risk remains intact over time, particularly in low-default years.
Transition rates, which gauge the degree to which ratings change--either up or down--over a particular period, are an important metric to analyze ratings performance. Our transition studies have repeatedly confirmed that higher ratings tend to be more stable and that speculative-grade ratings generally experience more volatility. Rating categories with fewer ratings will experience high rating transition rates even when a small number of issuers experience upgrades or downgrades.
The percentage of unchanged ratings in Greater China was 78.1% in 2018 (compared with 73.7% in 2017 and 76.4% in 2016). The downgrade-to-upgrade ratio fell significantly, to 0.74 to 1 in 2018 from 2.17 to 1 in 2017, owing to the increase in the number of upgrades in 2018, more stable ratings, and a sizable increase in newly rated issuers (which tend to transition less). For comparison, the percentage of unchanged ratings globally was 73.2% in 2018, 72.1% in 2017, and 69.5% in 2016.
Chart 4
The number of defaults in Greater China was generally in line with global trends from 2000-2018, with peaks and valleys mirroring those of global counterparts. While downgrades in Greater China were lower than average in 2018, the two defaults were an increase from one default in 2017 (see chart 5).
In 2015, the peak of six defaults in Greater China exceeded the previous all-time high of four defaults from 2009; however, the 2015 Greater China speculative-grade default rate was 7.2%, which was still lower than the 2009 rate of 8.5% (see chart 6). The Greater China trailing-12-month speculative-grade corporate default rate fell to zero in 2016 and then rose to almost 1% in both 2017 and 2018, owing to an increase in speculative-grade defaulters. The speculative-grade default rate has been zero in seven of the past 19 years.
Chart 5
Chart 6
The default rate for all rated corporate entities in Greater China was 0.19% in 2018, lower than 0.22% in 2017. The region's speculative-grade default rate decreased to 0.63% in 2018 from 0.79% in 2017 (see table 3). Meanwhile, the global speculative-grade corporate default rate decreased to 2.09% in 2018, with a total of 82 defaults, from 2.46% with a total of 95 defaults in 2017. The U.S. speculative-grade corporate default rate fell to 2.42% by the end of 2018 from 3.09% at the end of 2017.
Both the number of defaulters and the number of speculative-grade issuers in Greater China are relatively low. As a result, small differences in the numerators (default counts) and denominators (total number of speculative-grade issuers) can have a pronounced effect on default rates.
Table 3
| Greater China Corporate Default Summary (One-Year Horizon) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year | Total defaults* | Investment-grade defaults | Speculative-grade defaults | Default rate (%) | Investment-grade default rate (%) | Speculative-grade default rate (%) | ||||||||
| 2000 | 1 | 0 | 0 | 0.00 | 0.00 | 0.00 | ||||||||
| 2001 | 0 | 0 | 0 | 0.00 | 0.00 | 0.00 | ||||||||
| 2002 | 1 | 0 | 0 | 0.00 | 0.00 | 0.00 | ||||||||
| 2003 | 1 | 0 | 1 | 0.75 | 0.00 | 1.28 | ||||||||
| 2004 | 0 | 0 | 0 | 0.00 | 0.00 | 0.00 | ||||||||
| 2005 | 0 | 0 | 0 | 0.00 | 0.00 | 0.00 | ||||||||
| 2006 | 1 | 0 | 1 | 0.64 | 0.00 | 1.45 | ||||||||
| 2007 | 1 | 0 | 1 | 0.83 | 0.00 | 2.70 | ||||||||
| 2008 | 3 | 0 | 3 | 2.17 | 0.00 | 6.82 | ||||||||
| 2009 | 4 | 0 | 4 | 2.53 | 0.00 | 8.51 | ||||||||
| 2010 | 1 | 0 | 1 | 0.68 | 0.00 | 2.70 | ||||||||
| 2011 | 0 | 0 | 0 | 0.00 | 0.00 | 0.00 | ||||||||
| 2012 | 2 | 0 | 1 | 0.51 | 0.00 | 1.43 | ||||||||
| 2013 | 2 | 0 | 2 | 0.97 | 0.00 | 3.03 | ||||||||
| 2014 | 2 | 0 | 1 | 0.41 | 0.00 | 1.35 | ||||||||
| 2015 | 6 | 0 | 6 | 2.02 | 0.00 | 7.23 | ||||||||
| 2016 | 1 | 0 | 0 | 0.00 | 0.00 | 0.00 | ||||||||
| 2017 | 1 | 0 | 1 | 0.22 | 0.00 | 0.79 | ||||||||
| 2018 | 2 | 0 | 2 | 0.19 | 0.00 | 0.63 | ||||||||
| Average | 2 | 0 | 1 | 0.63 | 0.00 | 2.00 | ||||||||
| Median | 1 | 0 | 1 | 0.41 | 0.00 | 1.28 | ||||||||
| Standard deviation | 2 | 0 | 2 | 0.79 | 0.00 | 2.67 | ||||||||
| Minimum | 0 | 0 | 0 | 0.00 | 0.00 | 0.00 | ||||||||
| Maximum | 6 | 0 | 6 | 2.53 | 0.00 | 8.51 | ||||||||
| *This column includes companies that were no longer rated at the time of default. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||
The ratings distribution in Greater China is overwhelmingly investment grade, with just 33.2% of issuers rated in the speculative-grade rating category, compared with 50.3% of issuers globally, 57.4% in the U.S., 42.7% in Europe, 52% in emerging markets, and 25.9% in Asia (see chart 7). These numbers partly reflect the credit markets' level of development. In Greater China, the market is dominated by products traded and held in the large interbank market. These products vary from plain vanilla risk-free assets, like government bonds, to more complex and social-benefit-driven ones, including certain asset-backed securities. China's credit market has been growing incredibly quickly; however, the market is still suffering from its uneven issuer quality, high regulation, and a comparatively small rating population.
Chart 7
When issuers are rated investment grade, they typically have more favorable lending terms and lower financing costs (reflecting lower business and financial risk and comparatively low leverage). Thus, investment-grade ratings have higher stability and lower potential for default. Investment-grade ratings also tend to be less volatile through economic cycles than speculative-grade ratings because they are somewhat less affected by macroeconomic stress. While downgrades may materialize during sudden macroeconomic shocks, defaults remain rare for investment-grade issuers.
Globally, corporate defaults fell to 82 in 2018 from 95 in 2017 and 163 in 2016. The global corporate default count reached a record high of 268 in 2009 (see table 4).
Table 4
| Global Corporate Default Summary | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year | Total defaults* | Investment-grade defaults | Speculative-grade defaults | Default rate (%) | Investment-grade default rate (%) | Speculative-grade default rate (%) | Total debt defaulting (bil. $) | |||||||||
| 1981 | 2 | 0 | 2 | 0.14 | 0.00 | 0.62 | 0.1 | |||||||||
| 1982 | 18 | 2 | 15 | 1.19 | 0.18 | 4.41 | 0.9 | |||||||||
| 1983 | 12 | 1 | 10 | 0.76 | 0.09 | 2.94 | 0.4 | |||||||||
| 1984 | 14 | 2 | 12 | 0.91 | 0.17 | 3.27 | 0.4 | |||||||||
| 1985 | 19 | 0 | 18 | 1.11 | 0.00 | 4.33 | 0.3 | |||||||||
| 1986 | 34 | 2 | 30 | 1.72 | 0.15 | 5.70 | 0.5 | |||||||||
| 1987 | 19 | 0 | 19 | 0.94 | 0.00 | 2.81 | 1.6 | |||||||||
| 1988 | 32 | 0 | 29 | 1.38 | 0.00 | 3.86 | 3.3 | |||||||||
| 1989 | 44 | 3 | 35 | 1.78 | 0.22 | 4.68 | 7.3 | |||||||||
| 1990 | 70 | 2 | 56 | 2.73 | 0.14 | 8.12 | 21.2 | |||||||||
| 1991 | 93 | 2 | 65 | 3.25 | 0.14 | 11.05 | 23.7 | |||||||||
| 1992 | 39 | 0 | 32 | 1.49 | 0.00 | 6.10 | 5.4 | |||||||||
| 1993 | 26 | 0 | 14 | 0.60 | 0.00 | 2.50 | 2.4 | |||||||||
| 1994 | 21 | 1 | 15 | 0.63 | 0.05 | 2.11 | 2.3 | |||||||||
| 1995 | 35 | 1 | 29 | 1.05 | 0.05 | 3.53 | 9.0 | |||||||||
| 1996 | 20 | 0 | 16 | 0.51 | 0.00 | 1.81 | 2.7 | |||||||||
| 1997 | 23 | 2 | 20 | 0.63 | 0.08 | 2.01 | 4.9 | |||||||||
| 1998 | 56 | 4 | 48 | 1.28 | 0.14 | 3.67 | 11.3 | |||||||||
| 1999 | 109 | 5 | 92 | 2.14 | 0.17 | 5.56 | 39.4 | |||||||||
| 2000 | 136 | 7 | 109 | 2.48 | 0.24 | 6.23 | 43.3 | |||||||||
| 2001 | 229 | 7 | 173 | 3.79 | 0.23 | 9.87 | 118.8 | |||||||||
| 2002 | 226 | 13 | 159 | 3.60 | 0.42 | 9.49 | 190.9 | |||||||||
| 2003 | 119 | 3 | 89 | 1.93 | 0.10 | 5.07 | 62.9 | |||||||||
| 2004 | 56 | 1 | 38 | 0.78 | 0.03 | 2.02 | 20.7 | |||||||||
| 2005 | 40 | 1 | 31 | 0.60 | 0.03 | 1.51 | 42.0 | |||||||||
| 2006 | 30 | 0 | 26 | 0.48 | 0.00 | 1.19 | 7.13 | |||||||||
| 2007 | 24 | 0 | 21 | 0.37 | 0.00 | 0.91 | 8.15 | |||||||||
| 2008 | 127 | 14 | 89 | 1.80 | 0.42 | 3.70 | 429.63 | |||||||||
| 2009 | 268 | 11 | 224 | 4.19 | 0.33 | 9.94 | 627.70 | |||||||||
| 2010 | 83 | 0 | 64 | 1.21 | 0.00 | 3.02 | 97.48 | |||||||||
| 2011 | 53 | 1 | 44 | 0.80 | 0.03 | 1.84 | 84.30 | |||||||||
| 2012 | 83 | 0 | 66 | 1.14 | 0.00 | 2.59 | 86.70 | |||||||||
| 2013 | 81 | 0 | 64 | 1.06 | 0.00 | 2.31 | 97.29 | |||||||||
| 2014 | 60 | 0 | 45 | 0.69 | 0.00 | 1.44 | 91.55 | |||||||||
| 2015 | 113 | 0 | 94 | 1.36 | 0.00 | 2.77 | 110.31 | |||||||||
| 2016 | 163 | 1 | 143 | 2.08 | 0.03 | 4.23 | 239.79 | |||||||||
| 2017 | 95 | 0 | 83 | 1.20 | 0.00 | 2.46 | 104.57 | |||||||||
| 2018 | 82 | 0 | 72 | 1.03 | 0.00 | 2.09 | 131.65 | |||||||||
| Average | 72 | 2 | 58 | 1.44 | 0.09 | 3.99 | 71.88 | |||||||||
| Median | 55 | 1 | 41 | 1.17 | 0.03 | 3.15 | 20.91 | |||||||||
| Standard deviation | 64 | 4 | 50 | 0.98 | 0.12 | 2.68 | 125.61 | |||||||||
| Minimum | 2 | 0 | 2 | 0.14 | 0.00 | 0.62 | 0.06 | |||||||||
| Maximum | 268 | 14 | 224 | 4.19 | 0.42 | 11.05 | 627.70 | |||||||||
| *This column includes companies that were no longer rated at the time of default. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||
Table 5
| Summary Of Greater China Net Annual Rating Activity* | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year | Issuers | Upgrades (%) | Downgrades (%)§ | Defaults (%) | Withdrawn ratings (%) | Changed ratings (%) | Unchanged ratings (%) | Downgrade/upgrade ratio (%) | ||||||||||
| 2000 | 70 | 4.29 | 7.14 | 0.00 | 4.29 | 15.71 | 84.29 | 1.67 | ||||||||||
| 2001 | 78 | 6.41 | 2.56 | 0.00 | 3.85 | 12.82 | 87.18 | 0.40 | ||||||||||
| 2002 | 86 | 15.12 | 17.44 | 0.00 | 9.30 | 41.86 | 58.14 | 1.15 | ||||||||||
| 2003 | 133 | 0.75 | 3.01 | 0.75 | 11.28 | 15.79 | 84.21 | 4.00 | ||||||||||
| 2004 | 133 | 8.27 | 2.26 | 0.00 | 3.76 | 14.29 | 85.71 | 0.27 | ||||||||||
| 2005 | 147 | 28.57 | 4.76 | 0.00 | 6.12 | 39.46 | 60.54 | 0.17 | ||||||||||
| 2006 | 157 | 9.55 | 4.46 | 0.64 | 37.58 | 52.23 | 47.77 | 0.47 | ||||||||||
| 2007 | 120 | 13.33 | 6.67 | 0.83 | 11.67 | 32.50 | 67.50 | 0.50 | ||||||||||
| 2008 | 138 | 7.25 | 13.77 | 2.17 | 9.42 | 32.61 | 67.39 | 1.90 | ||||||||||
| 2009 | 158 | 3.80 | 13.29 | 2.53 | 13.92 | 33.54 | 66.46 | 3.50 | ||||||||||
| 2010 | 147 | 15.65 | 4.08 | 0.68 | 8.16 | 28.57 | 71.43 | 0.26 | ||||||||||
| 2011 | 159 | 8.81 | 12.58 | 0.00 | 5.66 | 27.04 | 72.96 | 1.43 | ||||||||||
| 2012 | 197 | 1.02 | 10.15 | 0.51 | 9.64 | 21.32 | 78.68 | 10.00 | ||||||||||
| 2013 | 206 | 9.71 | 7.28 | 0.97 | 7.77 | 25.73 | 74.27 | 0.75 | ||||||||||
| 2014 | 245 | 6.94 | 9.39 | 0.41 | 4.08 | 20.82 | 79.18 | 1.35 | ||||||||||
| 2015 | 297 | 4.71 | 8.42 | 2.02 | 6.06 | 21.21 | 78.79 | 1.79 | ||||||||||
| 2016 | 365 | 3.56 | 12.88 | 0.00 | 7.12 | 23.56 | 76.44 | 3.62 | ||||||||||
| 2017 | 456 | 5.26 | 11.40 | 0.22 | 9.43 | 26.32 | 73.68 | 2.17 | ||||||||||
| 2018 | 515 | 8.35 | 6.02 | 0.19 | 7.38 | 21.94 | 78.06 | 0.74 | ||||||||||
| Weighted average | 7.67 | 8.67 | 0.60 | 8.98 | 25.93 | 74.07 | 2.03 | |||||||||||
| Average | 8.49 | 8.29 | 0.63 | 9.29 | 26.70 | 73.30 | 1.90 | |||||||||||
| Median | 7.25 | 7.28 | 0.41 | 7.77 | 25.73 | 74.27 | 1.35 | |||||||||||
| Standard deviation | 6.40 | 4.38 | 0.79 | 7.41 | 10.21 | 10.21 | 2.29 | |||||||||||
| Minimum | 0.75 | 2.26 | 0.00 | 3.76 | 12.82 | 47.77 | 0.17 | |||||||||||
| Maximum | 28.57 | 17.44 | 2.53 | 37.58 | 52.23 | 87.18 | 10.00 | |||||||||||
| *Issuer counts as of end of each year. This table compares the net change in ratings from the first to the last day of each year. All intermediate ratings are disregarded. §Excludes downgrades to 'D', shown separately in the defaults column. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||
Table 6
| Rating Classification Of New Corporate Issuers In Greater China* | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| --First rating-- | ||||||||||||||||||||||
| Year | AAA | AA | A | BBB | BB | B | CCC/C | Total | Investment grade (%) | Speculative grade (%) | ||||||||||||
| 2000 | 0 | 0 | 2 | 2 | 1 | 6 | 0 | 11 | 36 | 64 | ||||||||||||
| 2001 | 0 | 2 | 1 | 7 | 0 | 1 | 0 | 11 | 91 | 9 | ||||||||||||
| 2002 | 0 | 2 | 3 | 12 | 16 | 29 | 1 | 63 | 27 | 73 | ||||||||||||
| 2003 | 0 | 0 | 1 | 11 | 3 | 1 | 1 | 17 | 71 | 29 | ||||||||||||
| 2004 | 0 | 0 | 4 | 7 | 5 | 0 | 0 | 16 | 69 | 31 | ||||||||||||
| 2005 | 0 | 0 | 0 | 8 | 8 | 2 | 0 | 18 | 44 | 56 | ||||||||||||
| 2006 | 0 | 0 | 3 | 4 | 12 | 7 | 0 | 26 | 27 | 73 | ||||||||||||
| 2007 | 0 | 0 | 9 | 4 | 5 | 12 | 1 | 31 | 42 | 58 | ||||||||||||
| 2008 | 0 | 1 | 13 | 10 | 9 | 1 | 0 | 34 | 71 | 29 | ||||||||||||
| 2009 | 0 | 0 | 6 | 4 | 1 | 2 | 2 | 15 | 67 | 33 | ||||||||||||
| 2010 | 0 | 1 | 3 | 8 | 8 | 5 | 0 | 25 | 48 | 52 | ||||||||||||
| 2011 | 0 | 3 | 4 | 6 | 22 | 11 | 0 | 46 | 28 | 72 | ||||||||||||
| 2012 | 0 | 0 | 7 | 7 | 8 | 6 | 0 | 28 | 50 | 50 | ||||||||||||
| 2013 | 0 | 2 | 12 | 22 | 15 | 7 | 1 | 59 | 61 | 39 | ||||||||||||
| 2014 | 0 | 0 | 20 | 24 | 9 | 10 | 1 | 64 | 69 | 31 | ||||||||||||
| 2015 | 0 | 4 | 24 | 31 | 12 | 7 | 2 | 80 | 74 | 26 | ||||||||||||
| 2016 | 0 | 0 | 15 | 48 | 34 | 8 | 0 | 105 | 60 | 40 | ||||||||||||
| 2017 | 0 | 4 | 14 | 22 | 26 | 34 | 1 | 101 | 40 | 60 | ||||||||||||
| 2018 | 0 | 0 | 9 | 40 | 33 | 38 | 4 | 124 | 40 | 60 | ||||||||||||
| Total | 0 | 19 | 150 | 277 | 227 | 187 | 14 | 874 | 51 | 49 | ||||||||||||
| *Includes issuers that are assigned new ratings after default as well as those that receive ratings for the first time. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||||
Higher Ratings Are Consistent With Fewer Defaults
About 93.1% of the defaulters from 2000-2018 in Greater China were initially rated speculative grade, and they averaged 3.7 years from initial rating to default. This is a faster rate of deterioration than the global average of 5.8 years from initial rating to default, but defaults in Greater China make up a fraction of global defaults, at just 29 from 2000-2018 (compared with 2,754 defaults globally from 1981-2018); hence, idiosyncratic factors are likely at play. For Greater China SOEs, the average time to default from the first rating is 2.1 years. For Greater China non-SOEs, the average time to default is almost twice as high at 3.9 years.
We generally have observed that higher-rated entities take a longer time to default than lower-rated entities do. We have also found this to be true for issuers in Greater China, using the original rating and last rating as the reference points (see table 7). For example, Greater China entities rated 'B' took an average of 3.4 years to default--less than the average of 4.4 years to default for 'BB' rated entities. The exception to this pattern is the 'BBB' rating category, at 3.5 years to default, due to a small sample size of issuers (just two) that defaulted that were ever rated in the 'BBB' category.
Table 7
| Time To Default From Original Rating Among Corporate Defaulters (Greater China Versus Global) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Original rating | Defaults | Average years from original rating* | Median years from original rating | Standard deviation of years from original rating | ||||||
| Greater China (2000-2018) | ||||||||||
| AAA | N.A. | N.A. | N.A. | N.A. | ||||||
| AA | N.A. | N.A. | N.A. | N.A. | ||||||
| A | N.A. | N.A. | N.A. | N.A. | ||||||
| BBB | 2 | 3.5 | 3.5 | 1.3 | ||||||
| BB | 13 | 4.4 | 4.5 | 2.5 | ||||||
| B | 11 | 3.4 | 2.1 | 2.9 | ||||||
| CCC/C | 3 | 1.3 | 1.4 | 0.2 | ||||||
| Total | 29 | 3.7 | 3.0 | 2.6 | ||||||
| Global (1981-2018) | ||||||||||
| AAA | 8 | 18.0 | 18.5 | 11.4 | ||||||
| AA | 30 | 16.0 | 16.8 | 9.2 | ||||||
| A | 98 | 13.5 | 10.9 | 8.5 | ||||||
| BBB | 208 | 8.8 | 7.1 | 6.5 | ||||||
| BB | 613 | 6.8 | 5.2 | 5.5 | ||||||
| B | 1,523 | 4.9 | 3.6 | 4.1 | ||||||
| CCC/C | 274 | 2.3 | 1.3 | 2.9 | ||||||
| Total | 2,754 | 5.8 | 4.0 | 5.5 | ||||||
| *Original rating or rating as of Jan. 1, 2000, for Greater China or Jan. 1, 1981, for global--whichever is later. N.A.--Not available. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||
Default rates by rating modifier (the plus or minus after the rating) show that lower rating categories historically experience higher default rates on average, though variability is possible in any given year (see table 8). Nevertheless, the data from past default cycles indicate that most defaults stemmed from the lowest ratings.
Table 8
| Greater China Cumulative Corporate One-Year Default Rates By Rating Modifier | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC/C | |||||||||||||||||||
| 2000 | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2001 | N/A | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2002 | N/A | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2003 | N/A | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 20.00 | |||||||||||||||||||
| 2004 | N/A | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2005 | N/A | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2006 | N/A | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 6.67 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2007 | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | N/A | 100.00 | |||||||||||||||||||
| 2008 | N/A | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 9.09 | 16.67 | 0.00 | 25.00 | N/A | 0.00 | |||||||||||||||||||
| 2009 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 11.11 | 33.33 | 25.00 | 100.00 | |||||||||||||||||||
| 2010 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 33.33 | |||||||||||||||||||
| 2011 | 0.00 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2012 | 0.00 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 5.56 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2013 | 0.00 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 8.33 | 0.00 | 0.00 | 100.00 | |||||||||||||||||||
| 2014 | 0.00 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 33.33 | |||||||||||||||||||
| 2015 | 0.00 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 4.00 | 9.09 | 9.09 | 0.00 | 100.00 | |||||||||||||||||||
| 2016 | 0.00 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2017 | 0.00 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 11.11 | 0.00 | |||||||||||||||||||
| 2018 | N/A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 20.00 | |||||||||||||||||||
| Average | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.48 | 1.44 | 1.79 | 3.55 | 2.12 | 26.67 | |||||||||||||||||||
| Median | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| Standard deviation | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 2.09 | 4.07 | 3.69 | 9.37 | 6.48 | 40.49 | |||||||||||||||||||
| Minimum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| Maximum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 9.09 | 16.67 | 11.11 | 33.33 | 25.00 | 100.00 | |||||||||||||||||||
| Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||||||||||||||||||
Industry Profile
In 2018, the two defaulters in Greater China were China Huayang Economic and Trade Group Co. Ltd. and China Automation Group Ltd., both from the aerospace, auto, capital goods, and metals sector. The annual corporate default rate for the sector rose to 1.64% (see table 9).
The median rating for Greater China as of December 2018 was 'BBB' (higher than the global median rating of 'BB+'). The median rating was 'A-' for Greater China financial issuers (higher than the global financial median rating of 'BBB+') and 'BBB-' for nonfinancial issuers (higher than the global nonfinancial median rating of 'BB') as of December 2018. For comparison, the median rating in the U.S. as of December 2018 was 'BB', with a median rating at 'A-' for financial issuers and 'BB-' for nonfinancial issuers.
Nonfinancial entities accounted for all of the defaults in Greater China from 2000-2018. The highest default rate by sector was in consumer services in 2008, at 33.3% (two out of the six rated issuers in the sector defaulted), followed by the aerospace, auto, capital goods, and metals sector's 28.6% default rate in 2009. Given the relatively small number of ratings in Greater China, these rates can vary substantially.
In the period between 2017 and 2018, the forest and building products/homebuilders sector more than quadrupled in size to 26 issuers from just six issuers. The health care and chemicals sector and energy and natural resources sector grew about 40% each, to 28 and 30 issuers, respectively.
Table 9
| Annual Greater China Corporate Default Rates By Industry | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | ||||||||||||||||
| Year | Aerospace/auto/capital goods/metals | Consumer/service | Energy and natural resources | Financial institutions | Forest and building products/homebuilders | Health care/chemicals | High tech/computers/office equipment | |||||||||
| 2000 | 0.00 | N.A. | N.A. | 0.00 | 0.00 | N.A. | N.A. | |||||||||
| 2001 | 0.00 | N.A. | N.A. | 0.00 | 0.00 | 0.00 | N.A. | |||||||||
| 2002 | 0.00 | N.A. | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2003 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | N.A. | 8.33 | |||||||||
| 2004 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2005 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2006 | 16.67 | 0.00 | 0.00 | 0.00 | 0.00 | N.A. | 0.00 | |||||||||
| 2007 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | N.A. | 10.00 | |||||||||
| 2008 | 0.00 | 33.33 | 16.67 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2009 | 28.57 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 11.11 | |||||||||
| 2010 | 0.00 | 0.00 | 25.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2011 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2012 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 10.00 | 0.00 | |||||||||
| 2013 | 0.00 | 0.00 | 10.00 | 0.00 | 14.29 | 0.00 | 0.00 | |||||||||
| 2014 | 0.00 | 0.00 | 7.69 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2015 | 0.00 | 6.67 | 14.29 | 0.00 | 25.00 | 0.00 | 0.00 | |||||||||
| 2016 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2017 | 0.00 | 0.00 | 7.69 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| 2018 | 1.64 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| Average | 2.47 | 2.50 | 4.78 | 0.00 | 2.07 | 0.67 | 1.73 | |||||||||
| Median | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| Standard deviation | 7.38 | 8.39 | 7.65 | 0.00 | 6.45 | 2.58 | 3.89 | |||||||||
| Minimum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||
| Maximum | 28.57 | 33.33 | 25.00 | 0.00 | 25.00 | 10.00 | 11.11 | |||||||||
| Insurance | Leisure time/media | Real estate | Telecom | Transportation | Utility | |||||||||||
| 2000 | 0.00 | N.A. | 0.00 | N.A. | 0.00 | 0.00 | ||||||||||
| 2001 | 0.00 | N.A. | 0.00 | N.A. | 0.00 | 0.00 | ||||||||||
| 2002 | 0.00 | N.A. | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2003 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2004 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2005 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2006 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2007 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2008 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2009 | 0.00 | 0.00 | 4.76 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2010 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2011 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2012 | 0.00 | N.A. | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2013 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2014 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2015 | 0.00 | 0.00 | 3.23 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2016 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2017 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| 2018 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| Average | 0.00 | 0.00 | 0.42 | 0.00 | 0.00 | 0.00 | ||||||||||
| Median | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| Standard deviation | 0.00 | 0.00 | 1.29 | 0.00 | 0.00 | 0.00 | ||||||||||
| Minimum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||
| Maximum | 0.00 | 0.00 | 4.76 | 0.00 | 0.00 | 0.00 | ||||||||||
| Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||
Table 10
| Cumulative Greater China Corporate Default Rates By Sector: All Rated | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | --All financials-- | --All nonfinancials-- | ||||||||||||
| Year | One-year | Three-year | 10-year | One-year | Three-year | 10-year | ||||||||
| 2000 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 3.45 | ||||||||
| 2001 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 3.33 | ||||||||
| 2002 | 0.00 | 0.00 | 0.00 | 0.00 | 2.94 | 5.88 | ||||||||
| 2003 | 0.00 | 0.00 | 0.00 | 2.04 | 2.04 | 4.08 | ||||||||
| 2004 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 3.85 | ||||||||
| 2005 | 0.00 | 0.00 | 0.00 | 0.00 | 1.56 | 6.25 | ||||||||
| 2006 | 0.00 | 0.00 | 0.00 | 1.47 | 2.94 | 7.35 | ||||||||
| 2007 | 0.00 | 0.00 | 0.00 | 1.35 | 4.05 | 8.11 | ||||||||
| 2008 | 0.00 | 0.00 | 0.00 | 3.80 | 8.86 | 11.39 | ||||||||
| 2009 | 0.00 | 0.00 | 0.00 | 4.65 | 5.81 | 9.30 | ||||||||
| 2010 | 0.00 | 0.00 | N/A | 1.35 | 2.70 | N/A | ||||||||
| 2011 | 0.00 | 0.00 | N/A | 0.00 | 3.49 | N/A | ||||||||
| 2012 | 0.00 | 0.00 | N/A | 0.86 | 3.45 | N/A | ||||||||
| 2013 | 0.00 | 0.00 | N/A | 1.64 | 5.74 | N/A | ||||||||
| 2014 | 0.00 | 0.00 | N/A | 0.66 | 3.97 | N/A | ||||||||
| 2015 | 0.00 | 0.00 | N/A | 3.30 | 3.85 | N/A | ||||||||
| 2016 | 0.00 | 0.00 | N/A | 0.00 | 0.90 | N/A | ||||||||
| 2017 | 0.00 | N/A | N/A | 0.36 | N/A | N/A | ||||||||
| 2018 | 0.00 | N/A | N/A | 0.31 | N/A | N/A | ||||||||
| Median | 0.00 | 0.00 | 0.00 | 0.66 | 2.94 | 6.07 | ||||||||
| Standard deviation | 0.00 | 0.00 | 0.00 | 1.41 | 2.34 | 2.74 | ||||||||
| Minimum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 3.33 | ||||||||
| Maximum | 0.00 | 0.00 | 0.00 | 4.65 | 8.86 | 11.39 | ||||||||
| Note: "All financials" refers to financial institutions and insurance combined. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||
Transition Tables And Cumulative Default Rates
Analysis of rating transitions in 2018 suggests that ratings behavior in Greater China continues to exhibit consistency with global trends, which have shown a negative correspondence between credit rating and default. Overall, investment-grade issuers in Greater China tend to exhibit greater credit stability (as measured by the frequency of rating transitions) than their speculative-grade counterparts.
Higher-rated issuers showed greater ratings stability in 2018 than speculative-grade issuers. For example, 96.1% of Greater China issuers rated 'A' at the beginning of 2018 (Jan. 1, 2018) were still rated 'A' at the end of the year (Dec. 31, 2018), and the comparable share for issuers rated 'B' was only 61.5%. (Caution must be used in interpreting the low stability rates associated with the 'CCC'/'C' rating category in light of the small sample size.)
In the speculative-grade category, stability rates were lower in Greater China than globally (especially in the 'B' rating category) in 2018, owing to both a smaller sample size in Greater China, where 33.2% of ratings are speculative grade (versus 50.3% globally), and a higher withdrawal rate (shown here as transitions to not rated ["NR"]).
We also track defaults even after the ratings on the issuers are withdrawn. For example, a hypothetical issuer that was rated in January 2018, underwent a rating withdrawal in May 2018, and defaulted in December 2018 would count in the 2018 trailing-12-month default rate. In the trailing-12-month default rate for June 2018, this hypothetical issuer would not count because it was not rated at the start of the period (June 2018). Please see Appendix I for more details.
Table 11
| 2018 One-Year Corporate Transition Rates: Greater China Versus Global | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | ||||||||||||||||||||
| From/to | AAA | AA | A | BBB | BB | B | CCC/C | D | NR | |||||||||||
| Greater China | ||||||||||||||||||||
| AAA | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||
| AA | 0.00 | 100.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||
| A | 0.00 | 0.65 | 96.10 | 1.95 | 0.00 | 0.00 | 0.00 | 0.00 | 1.30 | |||||||||||
| BBB | 0.00 | 0.00 | 4.81 | 92.51 | 0.53 | 0.00 | 0.00 | 0.00 | 2.14 | |||||||||||
| BB | 0.00 | 0.00 | 0.00 | 2.22 | 82.22 | 4.44 | 0.00 | 0.00 | 11.11 | |||||||||||
| B | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 61.54 | 6.15 | 0.00 | 32.31 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 20.00 | 40.00 | 20.00 | 20.00 | |||||||||||
| Global | ||||||||||||||||||||
| AAA | 88.89 | 11.11 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||
| AA | 0.00 | 92.05 | 5.50 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 2.45 | |||||||||||
| A | 0.00 | 0.87 | 91.97 | 3.69 | 0.00 | 0.00 | 0.00 | 0.00 | 3.47 | |||||||||||
| BBB | 0.00 | 0.00 | 2.81 | 90.79 | 1.43 | 0.00 | 0.06 | 0.00 | 4.91 | |||||||||||
| BB | 0.00 | 0.00 | 0.00 | 4.08 | 82.93 | 4.15 | 0.00 | 0.00 | 8.84 | |||||||||||
| B | 0.00 | 0.00 | 0.00 | 0.00 | 2.80 | 78.13 | 3.99 | 0.98 | 14.09 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.00 | 0.00 | 0.51 | 12.82 | 46.15 | 27.18 | 13.33 | |||||||||||
| NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||
This pattern is similar to the long-term (2000-2018) trend of ratings behavior among all global rated issuers. Of the issuers rated 'AAA' in Greater China, 85.7% retained the rating after one year (compared with 86.99% globally), and of the issuers rated 'AA' in Greater China, 85.96% retained this rating after one year (87.1% globally), whereas only 66.5% of issuers rated 'B' retained that rating (74.5% globally) (see table 12).
Based on the transition analysis for a two-year horizon, lower ratings also tend to display less stability than higher ratings (see table 13). Due to sample sizes, there are aberrations from time to time, as is the case with transitions from the 'BB' and 'B' rating categories to not rated (due to withdrawal). These aberrations have lowered the stability rate because of the relatively high withdrawal rates of these issuers. Transitions at the rating modifier also display the same relationship mostly, though differences in sample size occasionally create slight variations between adjacent rating categories (see table 14).
Table 12
| Average One-Year Corporate Transition Rates | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | ||||||||||||||||||||
| From/to | AAA | AA | A | BBB | BB | B | CCC/C | D | NR | |||||||||||
| Greater China (2000-2018) | ||||||||||||||||||||
| AAA | 85.71 | 14.29 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||
| AA | 2.81 | 85.96 | 10.67 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.56 | |||||||||||
| A | 0.00 | 1.69 | 93.62 | 2.25 | 0.00 | 0.00 | 0.00 | 0.00 | 2.44 | |||||||||||
| BBB | 0.00 | 0.00 | 3.48 | 89.31 | 2.11 | 0.00 | 0.00 | 0.00 | 5.10 | |||||||||||
| BB | 0.00 | 0.00 | 0.00 | 2.46 | 74.48 | 5.18 | 0.13 | 0.52 | 17.23 | |||||||||||
| B | 0.00 | 0.00 | 0.00 | 0.21 | 4.64 | 66.46 | 3.80 | 1.90 | 23.00 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 12.50 | 45.83 | 20.83 | 20.83 | |||||||||||
| Global (1981-2018) | ||||||||||||||||||||
| AAA | 86.99 | 9.12 | 0.53 | 0.05 | 0.08 | 0.03 | 0.05 | 0.00 | 3.15 | |||||||||||
| AA | 0.50 | 87.06 | 7.85 | 0.49 | 0.05 | 0.06 | 0.02 | 0.02 | 3.94 | |||||||||||
| A | 0.03 | 1.69 | 88.17 | 5.16 | 0.29 | 0.12 | 0.02 | 0.06 | 4.48 | |||||||||||
| BBB | 0.01 | 0.09 | 3.42 | 86.04 | 3.62 | 0.46 | 0.11 | 0.17 | 6.10 | |||||||||||
| BB | 0.01 | 0.03 | 0.11 | 4.83 | 77.50 | 6.65 | 0.55 | 0.65 | 9.67 | |||||||||||
| B | 0.00 | 0.02 | 0.08 | 0.17 | 4.93 | 74.53 | 4.42 | 3.44 | 12.41 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.11 | 0.20 | 0.59 | 13.21 | 43.51 | 26.89 | 15.50 | |||||||||||
| NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||
Table 13
| Average Two-Year Corporate Transition Rates | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | ||||||||||||||||||||
| From/to | AAA | AA | A | BBB | BB | B | CCC/C | D | NR | |||||||||||
| Greater China (2000-2018) | ||||||||||||||||||||
| AAA | 71.43 | 28.57 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||
| AA | 6.10 | 71.34 | 20.73 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 1.83 | |||||||||||
| A | 0.00 | 3.18 | 87.27 | 4.83 | 0.00 | 0.00 | 0.00 | 0.00 | 4.72 | |||||||||||
| BBB | 0.00 | 0.00 | 6.77 | 80.06 | 3.82 | 0.00 | 0.00 | 0.00 | 9.35 | |||||||||||
| BB | 0.00 | 0.00 | 0.15 | 4.84 | 58.06 | 8.06 | 0.73 | 1.03 | 27.13 | |||||||||||
| B | 0.00 | 0.00 | 0.00 | 0.73 | 7.33 | 47.43 | 4.40 | 4.89 | 35.21 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 13.95 | 16.28 | 32.56 | 37.21 | |||||||||||
| Global (1981-2018) | ||||||||||||||||||||
| AAA | 75.60 | 16.27 | 1.43 | 0.11 | 0.19 | 0.05 | 0.11 | 0.03 | 6.23 | |||||||||||
| AA | 0.88 | 75.89 | 13.91 | 1.25 | 0.18 | 0.14 | 0.02 | 0.06 | 7.66 | |||||||||||
| A | 0.04 | 3.03 | 77.92 | 8.96 | 0.74 | 0.27 | 0.04 | 0.14 | 8.87 | |||||||||||
| BBB | 0.02 | 0.18 | 6.24 | 74.43 | 5.81 | 1.05 | 0.21 | 0.47 | 11.59 | |||||||||||
| BB | 0.01 | 0.04 | 0.28 | 8.56 | 60.24 | 9.97 | 1.02 | 2.05 | 17.83 | |||||||||||
| B | 0.00 | 0.03 | 0.14 | 0.41 | 8.31 | 55.43 | 5.15 | 8.09 | 22.45 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.15 | 0.50 | 1.04 | 17.28 | 20.78 | 36.25 | 24.00 | |||||||||||
| NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||
Table 14
| Average One-Year Transition Rates For Greater China Corporates By Rating Modifier (2000-2018) | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | ||||||||||||||||||||||||||||||||||||||||
| From/to | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC | D | NR | |||||||||||||||||||||
| AAA | 85.71 | 14.29 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||
| AA+ | 33.33 | 66.67 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||
| AA | 0.00 | 16.67 | 70.83 | 12.50 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||||
| AA- | 0.00 | 0.00 | 3.60 | 82.01 | 12.95 | 0.72 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.72 | |||||||||||||||||||||
| A+ | 0.00 | 0.00 | 0.37 | 5.88 | 81.62 | 9.19 | 0.74 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 2.21 | |||||||||||||||||||||
| A | 0.00 | 0.00 | 0.00 | 0.29 | 5.60 | 86.73 | 4.72 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 2.65 | |||||||||||||||||||||
| A- | 0.00 | 0.00 | 0.00 | 0.00 | 0.44 | 5.51 | 86.34 | 4.85 | 0.44 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 2.42 | |||||||||||||||||||||
| BBB+ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.22 | 8.82 | 81.72 | 5.59 | 0.65 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 3.01 | |||||||||||||||||||||
| BBB | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 10.92 | 81.07 | 2.67 | 0.49 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 4.85 | |||||||||||||||||||||
| BBB- | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.28 | 1.12 | 6.15 | 77.65 | 5.59 | 0.56 | 0.56 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 8.10 | |||||||||||||||||||||
| BB+ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.89 | 5.36 | 64.73 | 11.16 | 1.34 | 0.00 | 0.45 | 0.00 | 0.00 | 0.00 | 16.07 | |||||||||||||||||||||
| BB | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.40 | 0.40 | 0.40 | 7.17 | 60.96 | 11.95 | 1.59 | 0.00 | 0.40 | 0.40 | 0.40 | 15.94 | |||||||||||||||||||||
| BB- | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.34 | 0.34 | 1.35 | 5.05 | 61.28 | 9.43 | 1.68 | 0.34 | 0.00 | 1.01 | 19.19 | |||||||||||||||||||||
| B+ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.51 | 1.52 | 4.55 | 53.03 | 13.64 | 3.03 | 1.52 | 2.02 | 20.20 | |||||||||||||||||||||
| B | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.99 | 2.97 | 6.44 | 54.95 | 8.91 | 0.99 | 1.49 | 23.27 | |||||||||||||||||||||
| B- | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 1.35 | 0.00 | 0.00 | 1.35 | 0.00 | 1.35 | 45.95 | 17.57 | 2.70 | 29.73 | |||||||||||||||||||||
| CCC/C | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 8.33 | 2.08 | 2.08 | 45.83 | 20.83 | 20.83 | |||||||||||||||||||||
| NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||||||||||||||||||||||
The negative correspondence between ratings and defaults in Greater China holds true over time, as the cumulative average default rates illustrate (see tables 15-16 and chart 8). On average, from 2000-2018, all rated Greater China issuers had a default rate of 0.6% in the first year after they were rated and of 1.2% in the second year. Issuers rated in the 'BB' category had a default rate of 0.5% in the first year after they were rated and of 0.96% in the second year. Issuers rated in the 'B' category had a default rate of 1.9% on average in the first year, 4.6% in the second, and so on.
Table 15
| Comparison Of Corporate Cumulative Average Default Rates | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | --Time horizon (years)-- | |||||||||||||||||||||
| From/to | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||||||||||
| Greater China (2000-2018) | ||||||||||||||||||||||
| AAA | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | N/A | N/A | ||||||||||||
| AA | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| BBB | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| BB | 0.52 | 0.96 | 1.46 | 2.94 | 4.37 | 5.05 | 6.05 | 6.60 | 6.60 | 6.60 | ||||||||||||
| B | 1.90 | 4.60 | 7.03 | 7.92 | 8.56 | 9.59 | 9.96 | 10.78 | 11.22 | 11.22 | ||||||||||||
| CCC/C | 20.83 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | ||||||||||||
| Investment grade | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| Speculative grade | 1.78 | 3.46 | 4.65 | 5.86 | 6.94 | 7.73 | 8.45 | 9.08 | 9.25 | 9.25 | ||||||||||||
| All rated | 0.60 | 1.18 | 1.61 | 2.05 | 2.47 | 2.78 | 3.07 | 3.33 | 3.41 | 3.41 | ||||||||||||
| Global (1981-2018) | ||||||||||||||||||||||
| AAA | 0.00 | 0.03 | 0.13 | 0.24 | 0.35 | 0.45 | 0.51 | 0.59 | 0.65 | 0.70 | ||||||||||||
| AA | 0.02 | 0.06 | 0.12 | 0.22 | 0.32 | 0.42 | 0.51 | 0.59 | 0.66 | 0.73 | ||||||||||||
| A | 0.06 | 0.14 | 0.23 | 0.35 | 0.49 | 0.63 | 0.81 | 0.96 | 1.12 | 1.28 | ||||||||||||
| BBB | 0.17 | 0.46 | 0.80 | 1.22 | 1.64 | 2.05 | 2.41 | 2.76 | 3.11 | 3.44 | ||||||||||||
| BB | 0.65 | 2.01 | 3.63 | 5.25 | 6.78 | 8.17 | 9.36 | 10.43 | 11.38 | 12.22 | ||||||||||||
| B | 3.44 | 7.94 | 11.86 | 14.95 | 17.33 | 19.26 | 20.83 | 22.07 | 23.18 | 24.21 | ||||||||||||
| CCC/C | 26.89 | 36.27 | 41.13 | 43.94 | 46.06 | 46.99 | 48.20 | 49.04 | 49.80 | 50.44 | ||||||||||||
| Investment grade | 0.09 | 0.25 | 0.43 | 0.66 | 0.90 | 1.14 | 1.36 | 1.56 | 1.77 | 1.96 | ||||||||||||
| Speculative grade | 3.66 | 7.13 | 10.12 | 12.56 | 14.55 | 16.18 | 17.55 | 18.69 | 19.70 | 20.62 | ||||||||||||
| All rated | 1.48 | 2.91 | 4.16 | 5.21 | 6.08 | 6.82 | 7.44 | 7.97 | 8.44 | 8.88 | ||||||||||||
| Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||||
Table 16
| Greater China Corporate Cumulative Average Default Rates By Rating Modifier (2000-2018) | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | --Time horizon (years)-- | |||||||||||||||||||||
| Rating | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | ||||||||||||
| AAA | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | N/A | N/A | ||||||||||||
| AA+ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| AA | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| AA- | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| A+ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| A | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| A- | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| BBB+ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| BBB | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| BBB- | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| BB+ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| BB | 0.40 | 0.86 | 1.93 | 3.70 | 5.61 | 5.61 | 5.61 | 5.61 | 5.61 | 5.61 | ||||||||||||
| BB- | 1.01 | 1.76 | 2.16 | 4.38 | 6.36 | 8.03 | 10.48 | 11.85 | 11.85 | 11.85 | ||||||||||||
| B+ | 2.02 | 4.77 | 8.81 | 10.07 | 10.74 | 12.83 | 13.58 | 15.27 | 16.16 | 16.16 | ||||||||||||
| B | 1.49 | 3.29 | 3.97 | 4.74 | 5.58 | 5.58 | 5.58 | 5.58 | 5.58 | 5.58 | ||||||||||||
| B- | 2.70 | 7.74 | 9.70 | 9.70 | 9.70 | 9.70 | 9.70 | 9.70 | 9.70 | 9.70 | ||||||||||||
| CCC/C | 20.83 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | 32.48 | ||||||||||||
| Investment grade | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| Speculative grade | 1.78 | 3.46 | 4.65 | 5.86 | 6.94 | 7.73 | 8.45 | 9.08 | 9.25 | 9.25 | ||||||||||||
| All rated | 0.60 | 1.18 | 1.61 | 2.05 | 2.47 | 2.78 | 3.07 | 3.33 | 3.41 | 3.41 | ||||||||||||
| Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||||
Chart 8
Lower ratings generally correspond with higher default rates, and the default rates in the 'CCC'/'C' category are much higher than those in the higher rating categories. The relatively small sample sizes of some rating categories in Greater China may add volatility to default rates and at times cause them to deviate from both global trends as well as expectations, as is the case in the 'BB-' through 'B' rating categories.
Gini Ratios And Lorenz Curves
A quantitative measure of ratings performance indicates that the relative rank ordering of ratings in Greater China is consistent across various time horizons. To measure ratings performance, or ratings accuracy, the cumulative share of issuers by rating is plotted against the cumulative share of defaulters in a Lorenz curve to render the accuracy of their rank ordering visually. For definitions and methodology, refer to Appendix III.
Our calculations indicate that the one-year transition to default in Greater China shows an average one-year Gini coefficient of 87.5%, a three-year Gini of 83.4%, and a five-year Gini of 75.5%. For Greater China, where SOEs play a critical role in the Chinese economy, we also calculated the Gini for SOEs and non-SOEs: The average one-year SOE Gini coefficient was 99.2%, and the average one-year non-SOE Gini was 83.4%. These figures illustrate that SOEs show comparatively strong rank ordering of ratings with respect to defaults, while non-SOE issuers follow global norms, albeit with slightly higher ratings performance.
If corporate ratings only randomly approximated default risk, the Gini coefficient would be zero. On the other hand, if corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the Lorenz curve would capture all of the area on the graph above the diagonal, and its Gini coefficient would be 1.
As expected, the Gini coefficients decline as the time horizon lengthens because longer time horizons allow for more credit degradation among higher-rated entities. In the one-year Greater China Lorenz curve, for example, 100% of defaults occurred in the speculative-grade category, while speculative-grade ratings constituted only 33.99% of all Greater China corporate issuers (see chart 9). The three-year Lorenz curve shows that speculative-grade issuers constituted 100% of defaulters and only 35.54% of the entire sample (see chart 10). The five-year Lorenz curve shows that speculative-grade issuers constituted 100% of defaulters and only 38.36% of the entire sample (see chart 11). If the rank ordering of ratings had little predictive value, the cumulative share of defaulting corporate entities and the cumulative share of all entities would be nearly the same.
Chart 9
Chart 10
Chart 11
Appendix I: Default Methodology And Definitions
This long-term corporate default and rating transition study uses S&P Global Market Intelligence's CreditPro® database of long-term local currency issuer credit ratings. Most tables and charts in this study are the direct output of the CreditPro® application, while others are based on manipulation of the underlying database.
An issuer credit rating reflects S&P Global Ratings' forward-looking opinion of a company's overall creditworthiness. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation because it does not take into account the nature and provisions of the obligation, its standing in bankruptcy or liquidation, its statutory preferences, or the legality and enforceability of the obligation. It is not necessary for a company to have rated debt to have an issuer credit rating.
Although the ratings on a company's very senior forms of secured debt, particularly ones with strong covenants, could occasionally be higher than the issuer credit rating on the company, specific issues are typically rated as high as or lower than these issuer ratings, depending on their relative priority within the company's debt structure. If they are speculative grade, issuer credit ratings are generally two notches higher than subordinated debt ratings. Otherwise, they are generally one notch higher. Therefore, although a 'BB+' issuer credit rating is generally paired with a 'BB-' subordinated debt rating, an issuer credit rating of 'AA' usually corresponds to a subordinated rating of 'AA-'.
Our ongoing enhancement of the CreditPro® database used to generate this study could lead to outcomes that differ to some degree from those reported in previous studies. However, this poses no continuity problem because each study reports statistics back to Dec. 31, 1980. Therefore, each annual default study is self-contained and effectively supersedes all previous versions.
Issuers included in this study
This study analyzes the rating histories of 946 Greater China entities that S&P Global Ratings rated from Jan. 1, 2000, through Dec. 31, 2018. These include industrials, utilities, financial institutions, and insurance entities with long-term local currency ratings. The analysis excludes public information ("pi") ratings and ratings based on the guarantee of another company. Structured finance vehicles, public-sector issuers, and sovereign issuers are the subjects of separate default and transition studies, and we excluded these from this study.
To avoid overcounting, the CreditPro® database excludes subsidiaries with debt that is fully guaranteed by a parent or with default risk that is considered identical to that of a parent. The latter are entities with obligations that are not legally guaranteed by a parent but that have operating or financing activities that are so inextricably entwined with those of the parent that it would be impossible to imagine the default of one and not the other. At times, however, some of these subsidiaries might not yet have been covered by a parent's guarantee, or the relationship that combines the default risk of parent and subsidiary might have come to an end or might not have begun. We included such subsidiaries for the period during which they had a distinct and separate risk of default.
Issuers with withdrawn ratings
S&P Global Ratings withdraws ratings when an entity's entire debt is paid off or when the program or programs rated are terminated and the relevant debt extinguished. For the purposes of this study, a rating may be withdrawn as a result of mergers and acquisitions. Others are withdrawn because of a lack of cooperation, particularly when a company is experiencing financial difficulties and refuses to provide all the information needed to continue surveillance on the ratings, or at the entity's request.
Definition of default
An obligor rated 'SD' (selective default) or 'D' (default) is in payment default on one or more of its financial obligations (rated or unrated) unless S&P Global Ratings believes that such payments will be made within five business days, irrespective of any grace period. S&P Global Ratings also lowers a rating to 'D' upon an issuer's filing for bankruptcy or taking a similar action that jeopardizes payments on a financial obligation.
A 'D' rating is assigned when S&P Global Ratings believes that the default will be a general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. S&P Global Ratings assigns an 'SD' rating when it believes that the obligor has selectively defaulted on a specific issue or class of obligations but will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. A selective default includes the completion of a distressed exchange offer, whereby one or more financial obligations is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
'R' (regulatory intervention) indicates that an obligor is under regulatory supervision owing to its financial condition. This does not necessarily indicate a default event, but the regulator might have the power to favor one class of obligations over others or pay some obligations and not others. Preferred stock is not considered a financial obligation; thus, a missed preferred stock dividend is not normally equated with default.
We deem 'D', 'SD', and 'R' issuer credit ratings to be defaults for the purposes of this study. A default is assumed to take place on the earliest of: the date S&P Global Ratings revised the rating(s) to 'D', 'SD', or 'R'; the date a debt payment was missed; the date a distressed exchange offer was announced; or the date the debtor filed or was forced into bankruptcy.
When an issuer defaults, it is not uncommon for S&P Global Ratings to subsequently withdraw the 'D' rating. For the purposes of this study, if an issuer defaults, we end its rating history at 'D'. If any defaulting entity reemerges from bankruptcy, or otherwise restructures its defaulted debt instruments, thereby reestablishing regular, timely payment of all its debts, we reenter this issuer into the database as a new entity. Its rating history after the default event is included in all calculations as entirely separate from its experience leading up to its earlier default.
Calculations
Static pool methodology. We conduct our default studies on the basis of groupings called static pools. For the purposes of this study, we form static pools by grouping issuers by rating category at the beginning of each year that the CreditPro® database covers. Each static pool is followed from that point forward. All entities included in the study are assigned to one or more static pools. When an issuer defaults, we assign that default back to all of the static pools to which the issuer belonged.
We use the static pool methodology to avoid certain pitfalls in estimating default rates, ensuring they account for rating migration and can be calculated across multiperiod time horizons. Some methods for calculating default and rating transition rates might charge defaults against only the initial rating on the issuer, ignoring more recent rating changes that supply more current information. Other methods may calculate default rates using only the most recent year's default and rating data, which may yield comparatively low default rates during periods of high rating activity because they ignore prior years' default activity.
The pools are static in the sense that their membership remains constant over time. Each static pool can be interpreted as a buy-and-hold portfolio. Because errors, if any, are corrected by every new update and because the criteria for inclusion or exclusion of entities in the default study are subject to minor revisions as time goes by, it is not possible to compare static pools across different studies. Therefore, every update revises results back to the same starting date of Dec. 31, 2000, so as to avoid continuity problems.
Entities that have had ratings withdrawn--that is, revised to not rated--are surveilled with the aim of capturing a potential default. Because static pools only include entities with active ratings as of the beginning date of a given pool, we exclude entities with withdrawn ratings, as well as those that have defaulted, from subsequent static pools. If the rating on an entity is withdrawn after the start date of a particular static pool and the entity subsequently defaults, we will include it in that static pool as a default and categorize it in the rating category of which it was a member at that time.
For instance, the 2000 static pool consists of all entities rated as of 12:01 a.m. on Jan. 1, 2000. Adding those entities first rated in 2000 to the surviving members of the 2000 static pool forms the 2001 static pool. All rating changes that took place are reflected in the newly formed 2001 static pool through the ratings on these entities as of 12:01 a.m. on Jan. 1, 2001. We used the same method to form static pools for 2000 through 2018.
Consider the following example: An issuer is originally rated 'BB' in mid-2006 and is downgraded to 'B' in 2008. This is followed by a rating withdrawal in 2010 and a default in 2013. We would include this hypothetical company in the 2007 and 2008 pools with the 'BB' rating, which was the rating on the issuer at the beginning of those years. Likewise, it would be included in the 2009 and 2010 pools with the 'B' rating. It would not be part of the 2006 pool because it was not rated as of the first day of that year, and it would not be included in any pool after the last day of 2010 because the rating had been withdrawn by then. Yet each of the four pools in which this company was included (2007-2010) would record its 2013 default at the appropriate time horizon.
Default rates. We calculated annual default rates for each static pool, first in units and then as percentages with respect to the number of issuers in each rating category. Finally, we combined these percentages to obtain cumulative default rates for the 19 years covered by the study.
Issuer-weighted default rates. All default rates that appear in this study are based on the number of issuers rather than the dollar amounts affected by defaults or rating changes. Although dollar amounts provide information about the portion of the market that is affected by defaults or rating changes, issuer-weighted averages are more useful measures of the performance of ratings.
Many practitioners utilize statistics from this default study and CreditPro® to estimate "probability of default" and "probability of rating transition." It is important to note that S&P Global Ratings' credit ratings do not imply a specific probability of default.
Cumulative average default rates. We derived cumulative default rates that average the experience of all static pools by calculating marginal default rates, conditional on survival (survivors being nondefaulters), for each possible time horizon and for each static pool, weight-averaging the conditional marginal default rates, and accumulating the average conditional marginal default rates. Conditional default rates are calculated by dividing the number of issuers in a static pool that default at a specific time horizon by the number of issuers that survived (did not default) to that point in time. Weights are based on the number of issuers in each static pool. Cumulative default rates are one minus the product of the proportion of survivors (nondefaulters).
For instance, the hypothetical weighted average first-year default rate for 'B' rated entities in Greater China for all 18 pools was 5%, meaning that an average of 95% survived one year. Similarly, the second- and third-year conditional marginal averages were 6% for the first 16 pools (95% of those entities that did not default in the first year survived the second year) and 4% for the first 15 pools (96% of those entities that did not default by the second year survived the third year). Multiplying 95% by 94% results in an 89.30% survival rate to the end of the second year, which yields a two-year cumulative average default rate of 10.70%. Multiplying 89.30% by 96% results in an 85.73% survival rate to the end of the third year, which yields a three-year cumulative average default rate of 14.27%.
Time sample. This update limits the reporting of default rates in Greater China to the 19-year time horizon, and we based all calculations on the rating experience of that period. Global data are based on a 37-year time horizon. The maturities of most obligations are much shorter than 19 years. In addition, average default statistics become less reliable at longer time horizons because the sample size becomes smaller and the cyclical nature of default rates has a bigger effect on averages.
Default patterns share broad similarities across all static pools, suggesting that S&P Global Ratings' credit rating standards have been consistent over time. Adverse business conditions tend to coincide with default upswings for all pools. These upswings have hit speculative-grade issuers the hardest, but investment-grade default rates also increase during stressful periods.
Transition analysis
Transition rates compare issuer credit ratings at the beginning of a period with ratings at the end of the period. To compute one-year rating transition rates by rating category, we compared the rating on each entity at the end of a particular year with the rating at the beginning of the same year. An issuer that remained rated for more than one year was counted as many times as the number of years it was rated. For instance, an issuer continually rated from the middle of 2004 to the middle of 2011 would appear in the six consecutive one-year transition matrices from 2005-2010. All 2003 static pool members still rated on Dec. 31, 2015, had 12 one-year transitions, while entities first rated between Jan. 1, 2015, and Dec. 31, 2015, had only one.
Each one-year transition matrix displays all rating movements between letter categories from the beginning of the year through year-end. For each rating listed in the matrix's leftmost column, there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'D', plus an entry for "NR." For instance, the first panel of table 12, which corresponds to the 18 one-year static pools, shows that out of all 'A' rated entities at the beginning of that year, 93.62% were rated the same at year-end, while S&P Global Ratings had upgraded 1.69% to 'AA', and so on.
Average one-year transition matrices were calculated on the basis of the one-year transition matrix just described. The ratios represent the historical incidence of the ratings listed in the first column changing to the ones listed in the top row over the course of the reference period.
Multiyear transitions. We also calculated multiyear transitions for periods of two to five years. In this case, we compared the rating at the beginning of the multiyear period with the rating at the end. For example, two-year transition matrices were the result of comparing ratings at the beginning of the years 2000-2016 with the ratings at the end of the years 2002-2018 (see table 13). Otherwise, the methodology was identical to that used for single-year transitions.
Comparing transition rates with default rates. For more information on the differences between transition rates and default rates, please see the section "Comparing transition rates with default rates" in Appendix I of the "2018 Annual Global Corporate Default And Rating Transition Study."
Appendix II: Additional Tables
Table 17
| Static Pool Cumulative Corporate Default Rates Among All Greater China Ratings (2000-2018) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | --Time horizon (years)-- | |||||||||||||||||||||||
| Year | Issuers | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |||||||||||||
| 2000 | 70 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 1.43 | 1.43 | 1.43 | |||||||||||||
| 2001 | 78 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 1.28 | 1.28 | 1.28 | 1.28 | |||||||||||||
| 2002 | 86 | 0.00 | 1.16 | 1.16 | 1.16 | 1.16 | 2.33 | 2.33 | 2.33 | 2.33 | 2.33 | |||||||||||||
| 2003 | 133 | 0.75 | 0.75 | 0.75 | 0.75 | 1.50 | 1.50 | 1.50 | 1.50 | 1.50 | 1.50 | |||||||||||||
| 2004 | 133 | 0.00 | 0.00 | 0.00 | 0.75 | 0.75 | 0.75 | 1.50 | 1.50 | 1.50 | 1.50 | |||||||||||||
| 2005 | 147 | 0.00 | 0.00 | 0.68 | 0.68 | 1.36 | 2.04 | 2.04 | 2.72 | 2.72 | 2.72 | |||||||||||||
| 2006 | 157 | 0.64 | 1.27 | 1.27 | 1.91 | 2.55 | 2.55 | 3.18 | 3.18 | 3.18 | 3.18 | |||||||||||||
| 2007 | 120 | 0.83 | 1.67 | 2.50 | 3.33 | 3.33 | 4.17 | 4.17 | 4.17 | 5.00 | 5.00 | |||||||||||||
| 2008 | 138 | 2.17 | 4.35 | 5.07 | 5.07 | 5.80 | 5.80 | 5.80 | 6.52 | 6.52 | 6.52 | |||||||||||||
| 2009 | 158 | 2.53 | 3.16 | 3.16 | 3.80 | 3.80 | 3.80 | 4.43 | 5.06 | 5.06 | 5.06 | |||||||||||||
| 2010 | 147 | 0.68 | 0.68 | 1.36 | 1.36 | 1.36 | 2.04 | 2.04 | 2.04 | 2.04 | ||||||||||||||
| 2011 | 159 | 0.00 | 1.26 | 1.89 | 2.52 | 4.40 | 4.40 | 4.40 | 4.40 | |||||||||||||||
| 2012 | 197 | 0.51 | 1.52 | 2.03 | 4.06 | 4.06 | 4.57 | 5.08 | ||||||||||||||||
| 2013 | 206 | 0.97 | 1.46 | 3.40 | 3.40 | 3.88 | 4.37 | |||||||||||||||||
| 2014 | 245 | 0.41 | 2.45 | 2.45 | 2.86 | 3.27 | ||||||||||||||||||
| 2015 | 297 | 2.02 | 2.02 | 2.36 | 2.69 | |||||||||||||||||||
| 2016 | 365 | 0.00 | 0.27 | 0.55 | ||||||||||||||||||||
| 2017 | 456 | 0.22 | 0.44 | |||||||||||||||||||||
| 2018 | 515 | 0.19 | ||||||||||||||||||||||
| Summary statistics | ||||||||||||||||||||||||
| Marginal average | 0.60 | 0.58 | 0.43 | 0.45 | 0.42 | 0.32 | 0.30 | 0.27 | 0.08 | 0.00 | ||||||||||||||
| Cumulative average | 0.60 | 1.18 | 1.61 | 2.05 | 2.47 | 2.78 | 3.07 | 3.33 | 3.41 | 3.41 | ||||||||||||||
| Standard deviation | 0.79 | 1.19 | 1.39 | 1.54 | 1.75 | 1.82 | 1.74 | 1.69 | 1.79 | 1.86 | ||||||||||||||
| Median | 0.41 | 1.21 | 1.36 | 2.21 | 2.55 | 2.44 | 2.33 | 2.52 | 2.33 | 2.52 | ||||||||||||||
| Minimum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 1.28 | 1.28 | 1.28 | ||||||||||||||
| Maximum | 2.53 | 4.35 | 5.07 | 5.07 | 5.80 | 5.80 | 5.80 | 6.52 | 6.52 | 6.52 | ||||||||||||||
| Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||||||
Table 18
| Static Pool Cumulative Corporate Default Rates Among All Investment-Grade Greater China Ratings (2000-2018) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | --Time horizon (years)-- | |||||||||||||||||||||||
| Year | Issuers | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |||||||||||||
| 2000 | 28 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2001 | 31 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2002 | 40 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2003 | 55 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2004 | 66 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2005 | 78 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2006 | 88 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2007 | 83 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2008 | 94 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2009 | 111 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||
| 2010 | 110 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
| 2011 | 118 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||
| 2012 | 127 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||
| 2013 | 140 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||
| 2014 | 171 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||||
| 2015 | 214 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| 2016 | 274 | 0.00 | 0.00 | 0.00 | ||||||||||||||||||||
| 2017 | 330 | 0.00 | 0.00 | |||||||||||||||||||||
| 2018 | 355 | 0.00 | ||||||||||||||||||||||
| Summary statistics | ||||||||||||||||||||||||
| Marginal average | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
| Cumulative average | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
| Standard deviation | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
| Median | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
| Minimum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
| Maximum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
| Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||||||
Table 19
| Static Pool Cumulative Corporate Default Rates Among All Speculative-Grade Greater China Ratings (2000-2018) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| --Time horizon (years)-- | ||||||||||||||||||||||||
| Year | Issuers | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |||||||||||||
| 2000 | 42 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 2.38 | 2.38 | 2.38 | |||||||||||||
| 2001 | 47 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 2.13 | 2.13 | 2.13 | 2.13 | |||||||||||||
| 2002 | 46 | 0.00 | 2.17 | 2.17 | 2.17 | 2.17 | 4.35 | 4.35 | 4.35 | 4.35 | 4.35 | |||||||||||||
| 2003 | 78 | 1.28 | 1.28 | 1.28 | 1.28 | 2.56 | 2.56 | 2.56 | 2.56 | 2.56 | 2.56 | |||||||||||||
| 2004 | 67 | 0.00 | 0.00 | 0.00 | 1.49 | 1.49 | 1.49 | 2.99 | 2.99 | 2.99 | 2.99 | |||||||||||||
| 2005 | 69 | 0.00 | 0.00 | 1.45 | 1.45 | 2.90 | 4.35 | 4.35 | 5.80 | 5.80 | 5.80 | |||||||||||||
| 2006 | 69 | 1.45 | 2.90 | 2.90 | 4.35 | 5.80 | 5.80 | 7.25 | 7.25 | 7.25 | 7.25 | |||||||||||||
| 2007 | 37 | 2.70 | 5.41 | 8.11 | 10.81 | 10.81 | 13.51 | 13.51 | 13.51 | 16.22 | 16.22 | |||||||||||||
| 2008 | 44 | 6.82 | 13.64 | 15.91 | 15.91 | 18.18 | 18.18 | 18.18 | 20.45 | 20.45 | 20.45 | |||||||||||||
| 2009 | 47 | 8.51 | 10.64 | 10.64 | 12.77 | 12.77 | 12.77 | 14.89 | 17.02 | 17.02 | 17.02 | |||||||||||||
| 2010 | 37 | 2.70 | 2.70 | 5.41 | 5.41 | 5.41 | 8.11 | 8.11 | 8.11 | 8.11 | ||||||||||||||
| 2011 | 41 | 0.00 | 4.88 | 7.32 | 9.76 | 17.07 | 17.07 | 17.07 | 17.07 | |||||||||||||||
| 2012 | 70 | 1.43 | 4.29 | 5.71 | 11.43 | 11.43 | 12.86 | 14.29 | ||||||||||||||||
| 2013 | 66 | 3.03 | 4.55 | 10.61 | 10.61 | 12.12 | 13.64 | |||||||||||||||||
| 2014 | 74 | 1.35 | 8.11 | 8.11 | 9.46 | 10.81 | ||||||||||||||||||
| 2015 | 83 | 7.23 | 7.23 | 8.43 | 9.64 | |||||||||||||||||||
| 2016 | 91 | 0.00 | 1.10 | 2.20 | ||||||||||||||||||||
| 2017 | 126 | 0.79 | 1.59 | |||||||||||||||||||||
| 2018 | 160 | 0.63 | ||||||||||||||||||||||
| Summary statistics | ||||||||||||||||||||||||
| Marginal average | 1.78 | 1.71 | 1.24 | 1.27 | 1.15 | 0.85 | 0.78 | 0.69 | 0.18 | 0.00 | ||||||||||||||
| Cumulative average | 1.78 | 3.46 | 4.65 | 5.86 | 6.94 | 7.73 | 8.45 | 9.08 | 9.25 | 9.25 | ||||||||||||||
| Standard deviation | 2.67 | 3.90 | 4.61 | 5.18 | 6.11 | 6.36 | 6.33 | 6.63 | 6.66 | 7.02 | ||||||||||||||
| Median | 1.28 | 2.80 | 5.41 | 7.43 | 5.80 | 6.95 | 7.25 | 6.52 | 5.80 | 5.07 | ||||||||||||||
| Minimum | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 2.13 | 2.13 | 2.13 | ||||||||||||||
| Maximum | 8.51 | 13.64 | 15.91 | 15.91 | 18.18 | 18.18 | 18.18 | 20.45 | 20.45 | 20.45 | ||||||||||||||
| Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||||||
Table 20
| Average Two-Year Greater China Corporate Transition Matrix (2000-2018) | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | ||||||||||||||||||||
| From/to | AAA | AA | A | BBB | BB | B | CCC/C | D | NR | |||||||||||
| AAA | 71.43 | 28.57 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||
| AA | 6.10 | 71.34 | 20.73 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 1.83 | |||||||||||
| A | 0.00 | 3.18 | 87.27 | 4.83 | 0.00 | 0.00 | 0.00 | 0.00 | 4.72 | |||||||||||
| BBB | 0.00 | 0.00 | 6.77 | 80.06 | 3.82 | 0.00 | 0.00 | 0.00 | 9.35 | |||||||||||
| BB | 0.00 | 0.00 | 0.15 | 4.84 | 58.06 | 8.06 | 0.73 | 1.03 | 27.13 | |||||||||||
| B | 0.00 | 0.00 | 0.00 | 0.73 | 7.33 | 47.43 | 4.40 | 4.89 | 35.21 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 13.95 | 16.28 | 32.56 | 37.21 | |||||||||||
| NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||
Table 21
| Average Three-Year Greater China Corporate Transition Matrix (2000-2018) | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | ||||||||||||||||||||
| From/to | AAA | AA | A | BBB | BB | B | CCC/C | D | NR | |||||||||||
| AAA | 66.67 | 33.33 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||
| AA | 9.40 | 63.09 | 24.16 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 3.36 | |||||||||||
| A | 0.00 | 4.12 | 82.60 | 6.57 | 0.00 | 0.00 | 0.00 | 0.00 | 6.70 | |||||||||||
| BBB | 0.00 | 0.00 | 9.74 | 72.05 | 5.15 | 0.00 | 0.00 | 0.00 | 13.06 | |||||||||||
| BB | 0.00 | 0.00 | 0.33 | 7.53 | 43.65 | 10.03 | 1.51 | 1.67 | 35.28 | |||||||||||
| B | 0.00 | 0.00 | 0.00 | 0.54 | 9.95 | 30.65 | 3.23 | 7.53 | 48.12 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 13.16 | 2.63 | 34.21 | 50.00 | |||||||||||
| NR--Not rated. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||
Table 22
| Average Five-Year Greater China Corporate Transition Matrix (2000-2018) | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | ||||||||||||||||||||
| From/to | AAA | AA | A | BBB | BB | B | CCC/C | D | NR | |||||||||||
| AAA | 50.00 | 50.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||
| AA | 19.30 | 50.00 | 26.32 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 4.39 | |||||||||||
| A | 0.00 | 6.21 | 76.24 | 7.80 | 0.00 | 0.00 | 0.00 | 0.00 | 9.75 | |||||||||||
| BBB | 0.00 | 0.16 | 13.86 | 59.03 | 4.52 | 0.00 | 0.00 | 0.00 | 22.43 | |||||||||||
| BB | 0.00 | 0.00 | 0.41 | 9.78 | 25.87 | 9.37 | 0.61 | 4.68 | 49.29 | |||||||||||
| B | 0.00 | 0.00 | 0.00 | 0.00 | 7.69 | 14.10 | 0.96 | 8.97 | 68.27 | |||||||||||
| CCC/C | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 32.26 | 67.74 | |||||||||||
| NR--Not rated. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||||||||
Table 23
| Greater China Defaults (2000-2018) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Issuer | Market | Industry | Default date | Rating prior to default | Date of rating prior to default | Reason for default | ||||||||
|
Tianjin International Trust & Investment Corp. |
China | Financial institutions | 12/16/2000 | NR | 8/2/1999 | Missed interest payment | ||||||||
|
Fujian International Trust & Investment Corp. |
China | Financial institutions | 1/24/2002 | NR | 8/2/1999 | Liquidation | ||||||||
|
Mosel Vitelic Inc. |
Taiwan | High tech/computers/office equipment | 4/25/2003 | NR | 3/25/2003 | Missed principal payment | ||||||||
|
Ocean Grand Holdings Ltd. |
Hong Kong | Aerospace/auto/capital goods/metals | 7/25/2006 | B | 7/20/2006 | Appointment of provisional liquidator | ||||||||
|
ASAT Holdings Ltd. |
Hong Kong | Aerospace/auto/capital goods/metals | 8/3/2007 | CCC | 12/15/2006 | Missed interest payment and debt restructuring | ||||||||
|
3D-Gold Jewellery Holdings Ltd. |
Hong Kong | Consumer/service | 10/15/2008 | BB | 10/2/2007 | Missed interest payment and request for standstill | ||||||||
|
ASAT Holdings Ltd. (A) |
Hong Kong | Aerospace/auto/capital goods/metals | 2/2/2009 | CC | 12/16/2008 | Missed interest payment | ||||||||
|
Asia Aluminum Holdings Ltd. |
China | Aerospace/auto/capital goods/metals | 3/17/2009 | CC | 2/16/2009 | Appointment of provisional liquidator | ||||||||
|
China Glass Holdings Ltd. |
China | Aerospace/auto/capital goods/metals | 8/4/2009 | CC | 6/5/2009 | Distressed exchange | ||||||||
|
Titan Petrochemicals Group Ltd. |
Hong Kong | Transportation | 7/21/2010 | CC | 12/8/2009 | Distressed exchange | ||||||||
|
China Medical Technologies Inc. |
China | Health care/chemicals | 1/31/2012 | B+ | 9/21/2010 | Missed interest payment | ||||||||
|
Sino-Forest Corp. |
China | Forest and building products/homebuilders | 3/30/2012 | NR | 8/30/2011 | Missed interest payment | ||||||||
|
Winsway Enterprises Holdings Ltd. |
China | Transportation | 10/10/2013 | CC | 8/21/2013 | Distressed exchange | ||||||||
|
China Forestry Holdings Co. Ltd. |
China | Forest and building products/homebuilders | 11/19/2013 | CCC- | 8/4/2011 | Missed interest payment | ||||||||
|
LDK Solar Co. Ltd. |
China | High tech/computers/office equipment | 10/21/2014 | NR | 9/8/2011 | Missed principal payment | ||||||||
|
Hidili Industry International Development Ltd. |
China | Energy and natural resources | 10/22/2014 | CC | 9/18/2014 | Distressed exchange | ||||||||
|
Kaisa Group Holdings Ltd. |
China | Forest and building products/homebuilders | 1/5/2015 | BB- | 5/2/2014 | Missed principal payment | ||||||||
| Renhe Commercial Holdings Co. Ltd. | China | Real estate | 1/8/2015 | CC | 11/26/2014 | Distressed exchange | ||||||||
|
Winsway Enterprises Holdings Ltd. (A) |
China | Transportation | 4/27/2015 | CCC | 10/28/2013 | Missed interest payment | ||||||||
|
Hidili Industry International Development Ltd. (A) |
China | Energy and natural resources | 11/4/2015 | CCC- | 4/27/2015 | Missed interest and principal payment | ||||||||
|
China Shanshui Cement Group Ltd. |
Hong Kong | Forest & Building Products/Homebuilders | 11/13/2015 | CC | 11/6/2015 | Missed principal payment | ||||||||
|
China Fishery Group Ltd. |
Hong Kong | Consumer/service | 11/26/2015 | CCC+ | 10/19/2015 | Missed loan payment | ||||||||
|
MIE Holdings Corp. |
Cayman Islands | Energy and natural resources | 8/28/2017 | CC | 6/12/2017 | Distressed exchange | ||||||||
|
China Huayang Economic and Trade Group Co. Ltd. |
China | Aerospace/auto/capital goods/metals | 10/2/2018 | B+ | 3/13/2018 | Missed principal payment | ||||||||
|
China Automation Group Ltd. |
Cayman Islands | Aerospace/auto/capital goods/metals | 11/25/2018 | CC | 11/14/2018 | Distressed exchange | ||||||||
| Note: Excludes confidential issuers. Sources: S&P Global Ratings Research and S&P Global Market Intelligence's CreditPro®. | ||||||||||||||
Appendix III: Gini Methodology
To measure ratings performance, or ratings accuracy, we plotted the cumulative share of issuers by rating against the cumulative share of defaulters in a Lorenz curve to visually render the accuracy of their rank ordering. The Lorenz curve was developed by Max O. Lorenz as a graphical representation of the proportionality of a distribution. To build the Lorenz curve, the observations are ordered from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA').
If S&P Global Ratings' corporate ratings only randomly approximated default risk, the Lorenz curve would fall along the diagonal. Their Gini coefficient--which is a summary statistic of the Lorenz curve--would thus be zero. If corporate ratings were perfectly rank ordered so that all defaults occurred only among the lowest-rated entities, the curve would capture all of the area above the diagonal on the graph, and its Gini coefficient would be 1 (see chart 12).
The procedure for calculating the Gini coefficients is to divide area B by the total of area A plus area B. In other words, the Gini coefficient captures the extent to which actual ratings accuracy diverges from the random scenario and aspires to the ideal scenario.
Chart 12
Appendix IV: Defaults In Profile
In 2018, there were two corporate defaults in Greater China, affecting $24 million of debt.
Table 24
| Issuer Credit Rating - China Huayang Economic And Trade Group Co. Ltd. | |
|---|---|
| Date | To |
| 08-Nov-2018 | NR/--/-- |
| 02-Oct-2018 | SD/NM/-- |
| 13-Mar-2018 | B+/Stable/-- |
Table 25
| Issuer Credit Rating - China Automation Group Ltd. | |
|---|---|
| Date | To |
| 06-Dec-2018 | CCC/Negative/-- |
| 25-Nov-2018 | SD/NM/-- |
| 14-Nov-2018 | CC/Negative/-- |
| 30-Aug-2016 | CCC/Negative/-- |
| 23-Jun-2016 | B-/Negative/-- |
| 30-Mar-2016 | B+/Negative/-- |
| 16-Jun-2015 | B+/Stable/-- |
| 17-Apr-2012 | BB-/Negative/-- |
| 06-Apr-2011 | BB-/Stable/-- |
Default Studies
More analysis and statistics are available in our annual default studies, published on RatingsDirect:
Corporate (financial and nonfinancial)
- 2018 Annual Taiwan Ratings Corp. Corporate Default And Rating Transition Study
- 2018 Annual Global Corporate Default And Rating Transition Study
- 2018 Annual U.S. Corporate Default And Rating Transition Study
- 2018 Annual Asia Corporate Default And Rating Transition Study
- Japanese Issuer Credit Rating Transitions Study 2018
- 2017 Annual Australia And New Zealand Corporate Default Study And Rating Transitions
- 2017 Inaugural Infrastructure Default Study And Rating Transitions
- 2017 Mexican National-Scale Corporate And Public Finance Default Study And Rating Transitions
- 2017 Annual Emerging Markets Corporate Default Study And Rating Transitions
- 2017 Annual European Corporate Default Study And Rating Transitions
- 2017 Annual Canadian Corporate Default Study And Rating Transitions
- 2017 Inaugural Nordic Default Study And Rating Transitions
- 2017 Annual Brazil Corporate Default Study And Rating Transitions
- 2017 Annual Greater China Corporate Default Study And Rating Transitions
- 2017 Annual Global Financial Services Default Study And Rating Transitions
- 2017 Annual Latin American Corporate Default Study And Rating Transitions
Structured finance
- 2018 Annual Global Leveraged Loan CLO Default And Rating Transition Study
- 2018 Annual Taiwan Structured Finance Default Study And Rating Transitions
- 2018 Annual Global Structured Finance Default Study And Rating Transitions
- 2018 Annual Japanese Structured Finance Default Study And Rating Transitions
- 2017 Annual Mexican Structured Finance Default Study And Rating Transitions
- 2017 Annual European Structured Finance Default Study And Rating Transitions
U.S. public finance
- 2018 Annual U.S. Public Finance Default Study And Rating Transitions
- 2017 Annual U.S. Public Finance Not-For-Profit Health Care Default Study And Rating Transitions
- 2017 U.S. Public Finance Utility Default Study And Rating Transitions
- 2017 U.S. Public Finance Transportation Default Study And Rating Transitions
- 2017 Annual U.S. Public Finance Housing Default Study And Rating Transitions
- 2017 Annual U.S. Public Finance Charter School Default Study And Rating Transitions
- 2017 Annual U.S. Public Finance Higher Education And Nonprofit Organization Default Study And Rating Transitions
Sovereign and international public finance
- 2018 Annual Sovereign Default And Rating Transition Study
- 2017 Annual International Public Finance Default Study And Rating Transitions
The use of the term "methodology" in this article refers to data aggregation and calculation methods used in conducting the research. It does not relate to S&P Global Ratings' methodologies, which are publicly available criteria used to determine credit ratings.
This report does not constitute a rating action.
| Primary Authors: | Xu Han, New York (1) 212-438-1491; xu.han@spglobal.com |
| Sudeep K Kesh, New York (1) 212-438-7982; sudeep.kesh@spglobal.com | |
| Research Contributors: | Sundaram Iyer, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
| Daniel Sek, New York (1) 212-438-3707; daniel.sek@spglobal.com |
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