COVID resurgences pose risks to APAC’s structured finance deals

Deals in India, Australia, Japan, and South Korea are the ones at most risk.

The recent surge of coronavirus cases and reimposition of restrictions in several APAC markets poses asset performance risk for structured finance deals in Australia, India, Japan, and South Korea, warns Moody’s Investors Service.

The COVID surges are dampening domestic demand and consumption in APAC countries, eroding on borrowers' financial reserves.

“Performance risks are notedly highest in India, where the overall number of coronavirus cases far outstrips cases in other APAC countries,” said Marie Lam, associate managing director at Moody’’s. “Asset performance risks for structured finance deals are therefore higher in India than in other Asia-Pacific countries.”

Performance risks are lower for Australia, Japan, and Korea. For the first three countries, if surging coronavirus cases and restrictions push up unemployment, structured finance deals' asset performance will deteriorate. However, ongoing fiscal stimulus will support employment in these countries, keeping risks low, Lam said.

Employees and workplaces are also now more used to COVID restrictions in these markets, which could curb job market disruptions. 

In China, whilst sporadic coronavirus cases have occurred in some cities over recent months, it hasn’t been to the level of resurgence seen in other countries. Asset performance risks are then “remote”, Lam said.

Government and lender support will also help mitigate asset performance risks for structured finance deals. APAC governments have notedly introduced various schemes to support individuals and businesses. 

For their part, lenders are supporting borrowers by deferring loan payments or modifying loan conditions.