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Asian firms prepare for sub-prime fallout

(HONG KONG) Asian companies will have a tough time raising funds and will face weaker export demand if the global credit squeeze persists and a deteriorating US housing market crimps consumer spending.

But most firms in the Asia-Pacific, where robust consumption provides a driver beyond the traditional reliance on exports, are waiting to see how the fallout from the US sub-prime mortgage crisis works its way through financial markets.

‘We believe the sub-prime situation will have some impact on the real economy and on the spending of consumers,’ said Chu Woo Sik, executive vice-president for investor relations at Samsung Electronics.

So far, a handful of financial firms, mostly in Australia, Japan and Taiwan, have reported exposure to the US sub-prime crisis but to a far lesser degree than has been seen in the West.

‘Asian corporates are in a strong position as robust nominal GDP (gross domestic product) growth since 2001 and reluctance to leverage heavily leaves the region in a better position than most,’ said Ben Simpfendorfer, strategist in Hong Kong at Royal Bank of Scotland. ‘But the region is still exposed to global capex (capital expenditure) if a credit crunch drags down capex spending in the developed world.’

Companies with riskier profiles have been forced to scrap or delay fund raisings. Last Friday, bankers said

loss-making Melco- PBL Entertainment was having a hard time finding lenders for its Macau casino projects.

Exporters with heavy exposure to the US could see their sales crimped if consumers and businesses lose confidence. ‘A slowdown in the US housing market will certainly affect demand for appliances and electronics goods,’ said an official with South Korea’s LG Electronics.

China’s Baoshan Iron and Steel yesterday said that it was cutting steel product prices for the fourth quarter of 2007, which industry sources said is a result of weaker demand spawned by the global credit squeeze.

Asian companies will be forced to pay more to raise capital if tight credit persists. Already, issuers from higher-risk markets such as Pakistan and Indonesia have been forced to pull deals or pay more for bond issues.

 

Source: Business Times 21 Aug 07

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