Investors, banks and other financial institutions now have another tool to help them assess and manage their bond, bank loan, counterparty and other risk exposures to companies in Asia. They also have a wider choice of research on equities in the region.
Standard & Poor's Risk Solutions started offering its CreditModel product -- which has been available in Europe, the US and Japan since 2000 -- to Asia ex-Japan. The service will initially cover corporates in South Korea and Taiwan, but S&P plans to have it covering China this year and other countries in the region from 2011.
Meanwhile, S&P Equity Research has increased its coverage from some 350 stocks to 2,500 stocks across 13 regional markets
CreditModel provides credit scores on more than 2,000 large and mid-sized South Korean and Taiwanese companies (those with $20 million or more in annual revenue) based on S&P's commercially available data. Thousands more can be scored by financial institutions using their own internal data, says the company. Model scores are mapped to S&P's ratings, meaning users can leverage 30 years of global and local ratings data and default experience to map one-year and multi-year default probabilities.
South Korea and Taiwan make sense as initial areas of coverage, as they are both open, export-orientated economies, to which investors and other counterparties have a lot of exposure, says Tom Schiller, S&P's Asia-Pacific head in Tokyo. In addition, South Korea is one of the three biggest debt markets in region, along with China and Japan.
"We don't anticipate any markets where the approach wouldn't work," says Clemens Thym, Asia-Pacific head of S&P Risk Solutions in Hong Kong. "Whether it's worth having a model in place is more down to the size of the market. It's a question of there being enough interest from local and international investors [in having that coverage]."
Neither of S&P's main rating-agency rivals, Fitch or Moody's Investors Service, provide research on Asian equities, nor does Fitch provide any form of comparable credit-scoring service in the region. However, Moody's Analytics does offer quantitative credit risk models, through its RiskCalc solution, for companies in Australia, Japan, Singapore and South Korea. It plans to expand models for the RiskCalc probability-of-default application to include China, Russia and regional emerging markets in the next six months.
There are also local companies that offer some similar information, but not data and credit scores comparable on a global scale, says Thym. "Their models are only specific for local markets," he tells AsianInvestor, "while S&P's are also comparable across geographies."
With regard to the extended equity coverage, certain markets will have more coverage than others, depending on the data available, says Lorraine Tan, Asia-Pacific head of equity research at S&P in Singapore. "Equity coverage using our proprietary fair-value model is limited by the depth of history of a country's equity market, and markets with a larger proportion of recent IPOs may have less coverage," she says. "We prefer to have a five- to seven-year history before we can run a meaningful assessment of a listed company."
S&P's expanded credit and equity research capability is presumably fairly labour-intensive, although so far the company has "leveraged existing resources and know-how throughout the region", says Schiller. But more analysts may be hired over time in the main offices of Beijing, Hong Kong, Singapore and Tokyo, he adds, and the company is planning to open an office in Shanghai in the second quarter.
S&P is probably best known for its role as a credit rating agency, but it also provides indexes, global equity research and mutual fund information and analysis.