2016 Greater China Corporate Default Study ... - S&P Global Ratings

Default, Transition, and Recovery:

2016 Greater China Corporate Default Study And Rating Transitions Global Fixed Income Research: Diane Vazza, Managing Director, New York (1) 212-438-2760; [email protected] Sudeep K Kesh, Senior Director, New York (1) 212-438-7982; [email protected] Xu Han, Associate, New York (1) 212-438-1491; [email protected] Research Contributor: Daniel Sek, New York (1) 212-438-3707; [email protected]

Table Of Contents Higher Ratings Are Consistent With Fewer Defaults Industry Profile Transition Tables And Cumulative Default Rates Gini Ratios And Lorenz Curves Appendix I: Default Methodology And Definitions Appendix II: Additional Tables Appendix III: Gini Methodology Default Studies

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OCTOBER 9, 2017 1

Default, Transition, and Recovery:

2016 Greater China Corporate Default Study And Rating Transitions The tally of corporations rated by S&P Global Ratings in Greater China (China, Hong Kong, Macau, and Taiwan) continued to grow rapidly in 2016, adding 91 issuers--an increase of 25% from 2015. The ratings profile of corporate issuers in Greater China continues to lean toward investment grade (rated 'BBB-' or higher) with a median rating of 'BBB', compared with a median rating of 'BB+' in the U.S., for example. About 80% of 'BBB' rated issuers in Greater China do not experience rating changes within one year, compared with 60% of 'BB+' rated issuers. Thus, higher ratings correspond with stronger ratings stability. Moreover, 76% of rated issuers in Greater China are rated investment grade, compared with 54% globally, 47% in the U.S., and 61% in Europe. This distinction is particularly important as China faces increasing questions on the sustainability of its credit-heavy economic growth, geopolitical risks (particularly with respect to the ongoing situation in North Korea), and potentially overleveraged state-owned enterprises. Ratings play an integral role in issuers' cost of capital when issuing debt in the credit markets: The higher the rating, the lower the cost of debt. Indeed, issuers in Greater China have had an average yield to maturity at initial issuance of just 3% in the 'A' rating category, 3.9% in the 'BBB' rating category, and 6.4% in the 'BB' rating category since 2013. Thus, the difference in yield demanded by investors is asymmetric, and higher-rated issuers tend to issue longer-term debt to take advantage of this lower cost of capital. In the same period, investment-grade issuers in Greater China average seven years for their new issuance terms, versus just four years for speculative-grade (rated 'BB+' or lower) issuers. This lower cost of financing and longer maturities help issuers mitigate default risk. Overview • The annual tally of corporate issuers rated by S&P Global Ratings in Greater China grew by 25% to 451 in 2016. • Downgrades eclipsed upgrades by a ratio of 4.9 to 1 (44 downgrades and nine upgrades), but issuer growth, especially in the investment-grade category, supported an unchanged median rating of 'BBB' in Greater China. • No companies that were rated at the beginning of 2016 defaulted over the course of the year, yielding investment-grade and speculative-grade default rates of zero. • The one-year Gini ratio--a measure of the relative ability of ratings to differentiate risk--was 85.47% in Greater China. This signifies a strong ability of ratings to differentiate relative credit risk across the ratings spectrum. The three-year Gini ratio was 80.54%.

In line with global trends, ratings continued to serve as effective indicators of relative credit risk in Greater China in 2016. S&P Global Fixed Income Research's 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.


OCTOBER 9, 2017 2

Default, Transition, and Recovery: 2016 Greater China Corporate Default Study And Rating Transitions

The one-year Gini ratio--a measure of the relative ability of ratings to differentiate risk--was 85.47% in Greater China. This signifies a strong ability of ratings to differentiate relative credit risk across the ratings spectrum. The three-year Gini ratio was 80.54%. By comparison, the global one-year Gini ratio was 82.31% and the three-year Gini ratio was 75.1%. Gini ratios are a measure 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). The number of rated issuers in Greater China increased by 25% from year-end 2015 to year-end 2016. The majority of new issuers were rated in the 'BBB' category, and investment-grade ratings grew 20%, indicating improved credit quality (see chart 1). Considering Greater China's comparatively high proportion of investment-grade companies, which tend to transition less than their speculative-grade counterparts; a strong Gini ratio; and a high stability ratio (the percentage of unchanged ratings among the total outstanding), we believe issuers rated by S&P Global Ratings will continue to perform as expected in Greater China, with low default tallies and stabilized rating transitions. This is not to say that downgrades and defaults are not possible should economic and geopolitical conditions deteriorate, but rather that issuers in Greater China, especially in the 'AA', 'A', and 'BBB' categories, are overall better equipped to "weather the storm," and issuers rated in the 'B' and 'CCC' categories, where the majority of downgrades and defaults would likely be concentrated, are few. Globally, downgrades and defaults typically come from these low rating categories. Chart 1


OCTOBER 9, 2017 3


China's prolonged period of strong credit growth has increased its economic and financial risks, and S&P Global Ratings thus lowered its sovereign credit ratings on China to 'A+/A-1' from 'AA-/A-1+' on Sept. 21, 2017. The stable outlook reflects S&P Global Ratings' view that China will maintain its robust economic performance and improved fiscal performance in the next three to four years. In this study, we examine the ratings performance of 773 Greater China-based issuers rated by S&P Global Ratings. Entities included in this study are those with business operations in Greater China, regardless of the country in which they are incorporated. In a number of instances, entities included in this study are 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 2000-2016. 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 2016, there were 44 downgrades and just nine upgrades in Greater China (see chart 2), yielding a downgrade-to-upgrade ratio of 4.9 to 1--the highest since 2012, when it was 6.75 to 1. This compares with 3.4 to 1 in 2015 and an average of 2.1 to 1 during 2000-2016. In the same period, the number of ratings in Greater China grew rapidly--just 68 issuers were rated at the beginning of 2000, compared with 451 by the end of 2016--particularly among borrowers rated in the 'A' and 'BBB' categories. Despite the downgrades, credit quality in Greater China remains relatively strong. After a nearly 16-year peak of six defaults in Greater China in 2015, there were no defaults in 2016, despite an uptick in defaults globally, to 162 in 2016 from 113 in 2015. So far in 2017, downgrades dominate in Greater China, with 47 downgrades and 14 upgrades as of Sept. 25, 2017, after a number of financial institutions, insurance companies, and nonfinancial companies were downgraded following the lowering of the sovereign credit rating.


OCTOBER 9, 2017 4


Chart 2

All of S&P Global Fixed Income Research's default studies have found a clear correlation between ratings and defaults. Over every time horizon, lower ratings correspond to higher default rates (see chart 3). We found the same is true when examining the data by rating as well as by region. As the Gini ratios show, the ability of corporate ratings to serve as effective measures of relative risk remains intact over time, particularly in low-default years. Many default studies, including this one, also look at transition rates, which gauge the degree to which ratings change--either up or down--over a particular period. Transition studies have repeatedly confirmed that higher ratings tend to be more stable and that speculative-grade ratings generally experience more volatility. However, since the financial downturn of 2008, many high-rated entities have been downgraded, leaving, for example, very few 'AAA' rated issuers at the start of 2016. Thus, rating categories with fewer ratings will experience high rating transition rates even when a small number of issuers experience upgrades or downgrades. In Greater China, the percentage of unchanged ratings was 86% in 2016 (compared with 85% in 2015 and 90% in 2014), despite the high downgrade-to-upgrade ratio, owing to higher and more stable ratings, as well as a sizable increase in newly rated issuers (which tend to transition less). By comparison, the percentage of unchanged ratings globally was 69% in 2016, 71% in 2015, and 75% in 2014. Nearly all defaulters from 2000-2016 in Greater China were initially rated 'BB' or lower, and they averaged 3.3 years


OCTOBER 9, 2017 5


from initial rating to default. This is a faster rate of deterioration than globally, with an average of 5.7 years from initial rating to default, but defaults in Greater China make up a fraction of global defaults, at just 25 from 2000-2016 (compared with 2,576 defaults globally), so idiosyncratic factors are often at play. Chart 3


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Chart 4

The number of defaults in Greater China was generally in line with global trends from 2000-2016, with peaks and valleys mirroring those of global counterparts. In 2015, the number of defaults in Greater China exceeded the previous all-time high from 2009; however, the 2015 default rate was nearly 1% lower than the peak of 8% in 2009--before falling to zero in 2016--owing to an increase in speculative-grade issuers. The speculative-grade default rate has been zero in seven of the past 16 years. The speculative-grade default rate among Greater China corporate entities decreased to zero as of year-end 2016 from 7.14% in 2015 (see table 1). The default rate for all rated corporate entities in Greater China was also zero in 2016, down from 2.05% in 2015. By comparison, the global speculative-grade corporate default rate rose to 4.2% in 2016, with a total of 162 defaults, from 2.8% with a total of 113 defaults in 2015. The U.S. speculative-grade corporate default rate rose to 5.3% by the end of 2016 from 2.9% at the end of 2015 (see chart 5). Both the number of defaulters and the number of speculative-grade issuers in Greater China are relatively low. Subsequently, small differences in the numerators (default counts) and denominators (total number of speculative-grade issuers) can have a pronounced effect on default rates.


OCTOBER 9, 2017 7


Chart 5

The ratings mix in Greater China is overwhelmingly investment grade, with just 24% of issuers rated in the speculative-grade rating category, compared with 46% of issuers globally, 53% in the U.S., 39% in Europe, 46% in emerging markets, and 25% in Asia-Pacific (see chart 6).


OCTOBER 9, 2017 8


Chart 6

When issuers are rated investment grade, they typically have more favorable lending terms and lower financing costs, and as such, they tend to have lower rates of default and more stable credit ratings. Investment-grade ratings also tend to be less cyclical in nature than their speculative-grade counterparts, as well as somewhat less affected by macroeconomic stress. While downgrades may materialize in the presence of sudden macroeconomic shocks, defaults remain rare for investment-grade issuers. Table 1

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

0

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

0.62

0.00

1.41

2007

1

0

1

0.81

0.00

2.56

2008

3

0

3

2.14

0.00

6.52


OCTOBER 9, 2017 9


Table 1

Greater China Corporate Default Summary (One-Year Horizon) (cont.) Year

Total defaults*


Speculative-grade defaults

Default rate (%)

Investment-grade default rate (%)


2009

4

0

4

2.55

0.00

8.00

2010

1

0

1

0.70

0.00

2.70

2011

0

0

0

0.00

0.00

0.00

2012

2

0

1

0.52

0.00

1.41

2013

2

0

2

1.00

0.00

2.94

2014

2

0

1

0.41

0.00

1.30

2015

6

0

6

2.05

0.00

7.14

2016

0

0

0

0.00

0.00

0.00

Average

1

0

1

0.68

0.00

2.07

Median

1

0

1

0.52

0.00

1.30

Standard deviation

2

0

2

0.83

0.00

2.67

Minimum

0

0

0

0.00

0.00

0.00

Maximum

6

0

6

2.55

0.00

8.00

*This column includes companies that were no longer rated at the time of default. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Globally, corporate defaults rose to 162 in 2016 from 113 in 2015 and 60 in 2014. However, the count was lower than the record high of 268 in 2009 (see table 2). Table 2

Global Corporate Default Summary Investment-grade default rate (%)


Total debt defaulting (bil. $)

0.14

0.00

0.62

0.1

15

1.19

0.18

4.41

0.9

1

10

0.76

0.09

2.94

0.4

2

12

0.91

0.17

3.27

0.4

19

0

18

1.11

0.00

4.32

0.3

1986

34

2

30

1.72

0.15

5.67

0.5

1987

19

0

19

0.94

0.00

2.79

1.6

1988

32

0

29

1.38

0.00

3.85

3.3

1989

44

3

35

1.77

0.22

4.67

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

Year

Total defaults*


1981

2

0

2

1982

18

2

1983

12

1984

14

1985


Speculative-grade Default defaults rate (%)

OCTOBER 9, 2017 10


Table 2

Global Corporate Default Summary (cont.) Investment-grade default rate (%)


Total debt defaulting (bil. $)

1.28

0.14

3.66

11.3

92

2.14

0.17

5.56

39.4

7

109

2.48

0.24

6.23

43.3

7

173

3.78

0.23

9.87

118.8

226

13

159

3.59

0.42

9.49

190.9

2003

119

3

89

1.92

0.10

5.06

62.9

2004

56

1

38

0.78

0.03

2.02

20.7

2005

40

1

31

0.60

0.03

1.50

42.0

2006

30

0

26

0.48

0.00

1.18

7.13

2007

24

0

21

0.37

0.00

0.91

8.15

2008

127

14

89

1.80

0.42

3.69

429.63

2009

268

11

224

4.18

0.33

9.89

627.70

2010

83

0

64

1.20

0.00

3.00

97.48

2011

53

1

44

0.80

0.03

1.83

84.30

2012

83

0

66

1.14

0.00

2.57

86.70

2013

81

0

64

1.06

0.00

2.29

97.29

2014

60

0

45

0.69

0.00

1.43

91.55

2015

113

0

94

1.36

0.00

2.75

110.31

2016

162

0

143

2.06

0.00

4.19

239.79

Average

72

2

57

1.46

0.09

4.08

69.31

Median

49

1

37

1.17

0.04

3.40

16.00

Standard deviation

66

4

51

1.01

0.12

2.72

128.60

Year

Total defaults*


Speculative-grade Default defaults rate (%)

1998

56

4

48

1999

109

5

2000

136

2001

229

2002

Minimum

2

0

2

0.14

0.00

0.62

0.10

Maximum

268

14

224

4.18

0.42

11.05

627.70

*This column includes companies that were no longer rated at the time of default. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Table 3

Summary Of Greater China Net Annual Rating Activity (%)* Changed ratings (%)

Unchanged ratings (%)

Downgrade/upgrade ratio

4.29

8.57

91.43

2.00

3.85

11.54

88.46

0.50

0.00

9.30

26.74

73.26

1.50

0.75

0.75

11.28

12.78

87.22

-

0.75

0.00

3.76

6.77

93.23

0.33

14.67

1.33

0.00

6.00

22.00

78.00

0.09

4.35

1.86

0.62

36.65

43.48

56.52

0.43

4.03

3.23

0.81

12.10

20.16

79.84

0.80

Year

Number of issuers

Upgrades (%)

Downgrades (%)§

Defaults (%)

Withdrawn ratings (%)

2000

70

1.43

2.86

0.00

2001

78

5.13

2.56

0.00

2002

86

6.98

10.47

2003

133

0.00

2004

133

2.26

2005

150

2006

161

2007

124


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Table 3

Summary Of Greater China Net Annual Rating Activity (%)* (cont.)

Year

Number of issuers

Upgrades (%)

Downgrades (%)§

Defaults (%)

Withdrawn ratings (%)

Changed ratings (%)

Unchanged ratings (%)

Downgrade/upgrade ratio

2008

140

1.43

2.86

2.14

10.00

16.43

83.57

2.00

2009

157

2.55

1.91

2.55

14.65

21.66

78.34

0.75

2010

142

10.56

1.41

0.70

8.45

21.13

78.87

0.13

2011

155

2.58

5.81

0.00

5.81

14.19

85.81

2.25

2012

191

0.52

3.66

0.52

10.47

15.18

84.82

7.00

2013

201

3.98

4.48

1.00

7.96

17.41

82.59

1.12

2014

241

2.90

1.66

0.41

4.56

9.54

90.46

0.57

2015

292

2.74

4.11

2.05

6.51

15.41

84.59

1.50

2016

360

0.83

6.39

0.00

7.22

14.44

85.56

7.67

Weighted average

3.55

3.45

0.75

9.49

17.24

82.76

2.20

Average

3.94

3.30

0.68

9.58

17.50

82.50

1.79

Median

2.74

2.86

0.52

7.96

15.41

84.59

0.96

Standard deviation

3.78

2.47

0.83

7.64

8.53

8.53

2.27

Minimum

0.00

0.75

0.00

3.76

6.77

56.52

0.09

Maximum

14.67

10.47

2.55

36.65

43.48

93.23

7.67

*Issuer counts are as of the 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' (default), shown separately in the defaults column. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Table 4

Rating Classification Of New Corporate Issuers In Greater China* --First rating-Year

AAA

AA

2000

A

BBB

BB

B

2

2

1

6

CCC/C

11

36

64

2001

2

1

7

11

91

9

2002

2

3

12

18

29

1

65

26

74

2003

1

11

3

1

1

17

71

29

2004

3

9

6

18

67

33

8

9

2

19

42

58

3

4

13

7

27

26

74

29

41

59

32

66

34

2005 2006 2007 2008

1

2009

1

Total Investment grade (%) Speculative grade (%)

8

4

4

12

11

9

9

2

1

5

3

1

2

13

62

38

2010

1

3

8

7

6

25

48

52

2011

1

4

6

22

11

44

25

75

5

8

8

7

28

46

54

2

10

19

15

8

1

55

56

44

20

25

9

11

1

66

68

32

24

33

12

7

2

82

74

26

2012 2013 2014 2015

4


2

OCTOBER 9, 2017 12


Table 4

Rating Classification Of New Corporate Issuers In Greater China* (cont.) --First rating-Year

AAA

AA

2016 Total

0

13

A

BBB

BB

B

15

48

18

8

118

216

155

120

CCC/C

9

Total Investment grade (%) Speculative grade (%) 89

71

29

631

55

45

*Includes issuers that are assigned a new rating after default as well as those that receive a rating for the first time. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Higher Ratings Are Consistent With Fewer Defaults 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 5). For example, Greater China entities rated 'B' took an average of 3.4 years to default--less than the average of 3.8 years to default for 'BB' rated entities. The exception to this pattern in the 'BBB' rating category is due to a small sample size of issuers (just two) that defaulted that were ever rated in the 'BBB' category. For the entire long-term pool of Greater China defaults (25 issuers), the average time to default across all rating categories was 3.3 years, compared with 5.7 years in the global pool. Moreover, we observe the same gap in the average time to default between rated global issuers and rated Greater China issuers in each rating category. The smaller sample size in Greater China (and a relative scarcity of defaults) is largely responsible for this disparity. As expected, the average time to default from all ratings, which includes all rating transitions, generally shows that higher ratings have a longer time to default, albeit somewhat shorter than the time to default from the original rating. The time to default from all ratings includes the original ratings and all intermediate ratings on every entity that defaulted in Greater China. Table 5

Time To Default From Original Rating Among Corporate Defaulters (Greater China Versus Global) Number of defaults

Average years from original rating

Median years from original rating

Standard deviation of years from original rating

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.

2

3.5

3.5

1.3

Original rating Greater China (2000-2016)

BBB BB

11

3.8

4.3

2.3

B

9

3.4

2.1

3.0

CCC/C

3

1.3

1.4

0.2

25

3.3

2.6

2.4

Total Global (1981-2016) AAA

8

18.0

18.5

11.4

AA

29

15.2

14.4

8.5

A

97

13.3

10.8

8.2


OCTOBER 9, 2017 13


Table 5

Time To Default From Original Rating Among Corporate Defaulters (Greater China Versus Global) (cont.) Original rating

Number of defaults

Average years from original rating

Median years from original rating

Standard deviation of years from original rating

202

8.4

7.0

5.9

BBB BB B CCC/C Total

595

6.6

5.1

5.2

1,415

4.8

3.5

4.0

230

2.3

1.3

2.8

2,576

5.7

4.0

5.3

N.A.--Not available. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

The breakout of default rates by rating modifier (the plus or minus after the rating) shows that lower rating categories historically experience higher default rates on average, though variability is possible in any given year (see table 6). Nevertheless, the data from past default cycles indicate that most defaults stemmed from the lowest ratings. Table 6

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 20.00

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 10.00 25.00 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

5.26

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

7.14

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

8.33

8.33

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

Average

0.00

0.00

0.00 0.00 0.00 0.00 0.00

0.00

0.00

0.00

0.00 0.53

1.61

1.81

3.14

1.67

28.63

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 2.20

4.29

3.47

7.61

6.45

42.35

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 10.00 25.00 25.00

100.00

N/A--Not applicable. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.


OCTOBER 9, 2017 14


Industry Profile Nonfinancial entities accounted for all of the defaults in Greater China from 2000-2016. The highest default rate by sector was in forest products and building materials in 2015, at 33% (two out of the six rated issuers defaulted), followed by the consumer and service sector's 29% default rate in 2008. These figures are volatile given the relatively small number of ratings in Greater China. Table 7

Annual Greater China Corporate Default Rates By Industry (%)

Year

Energy & High Aerospace/auto/capital natural Financial Forest & building Health tech/computers/ goods/metals Consumer/service resources institutions products/homebuilders care/chemicals office equipment

2000

0.00

0.00

N/A

0.00

0.00

N/A

N/A

2001

0.00

0.00

N/A

0.00

0.00

0.00

N/A

2002

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2003

0.00

0.00

0.00

0.00

0.00

N/A

10.00

2004

0.00

0.00

0.00

0.00

0.00

N/A

0.00

2005

0.00

0.00

0.00

0.00

0.00

N/A

0.00

2006

12.50

0.00

0.00

0.00

0.00

0.00

0.00

2007

14.29

0.00

0.00

0.00

0.00

0.00

0.00

2008

0.00

28.57

14.29

0.00

0.00

0.00

0.00

2009

37.50

0.00

0.00

0.00

0.00

0.00

0.00

2010

0.00

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

0.00

2012

0.00

0.00

0.00

0.00

0.00

10.00

0.00

2013

0.00

0.00

0.00

0.00

11.11

0.00

0.00

2014

0.00

0.00

5.26

0.00

0.00

0.00

0.00

2015

0.00

6.25

4.17

0.00

33.33

0.00

0.00

2016

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Average

3.78

2.05

1.58

0.00

2.61

0.77

0.67

Median

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Standard deviation

9.76

7.00

3.89

0.00

8.36

2.77

2.58

Minimum

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Maximum

37.50

28.57

14.29

0.00

33.33

10.00

10.00

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


OCTOBER 9, 2017 15


Table 7

Annual Greater China Corporate Default Rates By Industry (%) (cont.) 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

4.55

0.00

0.00

0.00

2010

0.00

0.00

0.00

0.00

12.50

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

10.00

0.00

2014

0.00

0.00

0.00

0.00

0.00

0.00

2015

0.00

0.00

1.59

0.00

8.33

0.00

2016

0.00

0.00

0.00

0.00

0.00

0.00

Average

0.00

0.00

0.36

0.00

1.81

0.00

Median

0.00

0.00

0.00

0.00

0.00

0.00

Standard deviation

0.00

0.00

1.14

0.00

4.11

0.00

Minimum

0.00

0.00

0.00

0.00

0.00

0.00

Maximum

0.00

0.00

4.55

0.00

12.50

0.00


Table 8

Cumulative All Rated Greater China Corporate Default Rates By Sector (%) --All financials--

--All nonfinancials--

Year

One year

Three years

10 years

One year

Three years

10 years

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

2.86

5.71

2003

0.00

0.00

0.00

1.96

1.96

3.92

2004

0.00

0.00

0.00

0.00

0.00

3.70

2005

0.00

0.00

0.00

0.00

1.49

5.97

2006

0.00

0.00

0.00

1.39

2.78

6.94

2007

0.00

0.00

0.00

1.28

3.85

7.69

2008

0.00

0.00

3.66

8.54

2009

0.00

0.00

4.49

5.62

2010

0.00

0.00

1.33

2.67

2011

0.00

0.00

0.00

3.41

2012

0.00

0.00

0.84

3.36

2013

0.00

0.00

1.56

5.47

2014

0.00

0.00

0.63

3.80

2015

0.00

3.19

2016

0.00

0.00

Median

0.00

0.00

0.00

0.84

2.86

4.82

Standard deviation

0.00

0.00

0.00

1.42

2.33

1.71

Minimum

0.00

0.00

0.00

0.00

0.00

3.33


OCTOBER 9, 2017 16


Table 8

Cumulative All Rated Greater China Corporate Default Rates By Sector (%) (cont.) --All financials-Year

--All nonfinancials--

One year

Three years

10 years

One year

Three years

10 years

0.00

0.00

0.00

4.49

8.54

7.69

Maximum

Note: "All financials" refers to financial institutions and insurance combined. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Transition Tables And Cumulative Default Rates Analysis of rating transitions in 2016 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. 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 (see table 9). For instance, 92% of Greater China issuers rated 'A' at the beginning of 2016 (Jan. 1, 2016) were still rated 'A' at the end of the year (Dec. 31, 2016), whereas the comparable share for issuers rated 'B' was only 67%. (Caution must be used in interpreting the low stability ratios associated with the 'CCC'/'C' rating category in light of the small sample size.) In the speculative-grade category, stability ratios are lower in Greater China than globally (especially in the 'B' rating category), owing to both a smaller sample size in Greater China, where 24% of ratings are speculative grade (versus 46% globally), and a higher withdrawal rate (shown here as a transition to 'NR' [not rated]). Also, we track defaults even after the ratings on the issuers are withdrawn. For example, a hypothetical issuer that is rated in January 2005, undergoes a rating withdrawal in May 2005, and defaults in December 2005 will count in the 2005 trailing-12-month default rate. In the trailing-12-month default rate for June 2006, this hypothetical issuer will not count because it was not rated at the start of the period (June 2005). Please see Appendix I for more details. Table 9

2016 One-Year Corporate Transition Rates: China Versus Global (%) From/to

AAA

AA

A

BBB

BB

B

CCC/C

D

NR

100.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

AA

0.00

83.87

16.13

0.00

0.00

0.00

0.00

0.00

0.00

A

0.00

0.50

94.47

3.02

0.00

0.00

0.00

0.00

2.01

BBB

0.00

0.00

2.53

88.61

3.38

0.42

0.00

0.00

5.06

BB

0.00

0.00

0.00

1.90

71.43

9.52

0.95

0.95

15.24

B

0.00

0.00

0.00

0.00

1.59

71.43

6.35

3.17

17.46

CCC/C

0.00

0.00

0.00

0.00

0.00

14.29

14.29

42.86

28.57

81.25

12.50

0.00

0.00

0.00

0.00

0.00

0.00

6.25

AA

0.00

90.11

6.50

0.00

0.00

0.00

0.00

0.00

3.39

A

0.00

0.82

91.02

4.01

0.00

0.00

0.00

0.00

4.15

BBB

0.00

0.00

2.62

87.70

3.23

0.17

0.06

0.00

6.23

China AAA

Global AAA


OCTOBER 9, 2017 17


Table 9

2016 One-Year Corporate Transition Rates: China Versus Global (%) (cont.) From/to

AAA

AA

A

BBB

BB

B

CCC/C

D

BB

0.00

0.00

0.00

3.12

B

0.00

0.00

0.00

0.00

CCC/C

0.00

0.00

0.00

0.00

NR

80.37

6.07

0.23

0.47

9.74

3.84

74.00

5.55

3.68

12.92

0.99

14.36

40.59

32.67

11.39

D--Default. NR--Not rated. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

This pattern is similar to the long-term (2000-2015) trend of ratings behavior among all global rated issuers. Of the issuers rated 'AA' in Greater China, 88% retained this rating after one year, whereas only 67% of issuers rated 'B' retained that rating (see table 10). Based on the transition analysis for a two-year time horizon versus a one-year time horizon, lower ratings also tend to display less stability than higher ratings (see table 11). 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 'NR' (due to withdrawal). These aberrations have lowered the stability ratio because of the relatively high withdrawal rate of these issuers. Transitions at the rating modifier also display the same relationship by and large, though differences in sample size occasionally create slight variations between adjacent rating categories (see table 12). Table 10

Average One-Year Corporate Transition Rates (%) From/to

AAA

AA

A

BBB

BB

B

CCC/C

D

NR

100.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

AA

3.60

87.77

7.91

0.00

0.00

0.00

0.00

0.00

0.72

A

0.00

2.35

92.27

2.49

0.00

0.00

0.00

0.00

2.90

BBB

0.00

0.00

3.69

88.27

2.35

0.11

0.00

0.00

5.59

BB

0.00

0.00

0.00

2.83

73.50

5.50

0.17

0.67

17.33

B

0.00

0.00

0.00

0.26

5.67

67.01

3.09

2.06

21.91

CCC/C

0.00

0.00

0.00

0.00

0.00

13.16

47.37

23.68

15.79

Greater China (2000-2016) AAA

Global (1981-2016) AAA

87.05

9.03

0.53

0.05

0.08

0.03

0.05

0.00

3.17

AA

0.52

86.82

8.00

0.51

0.05

0.07

0.02

0.02

3.99

A

0.03

1.77

87.79

5.33

0.32

0.13

0.02

0.06

4.55

BBB

0.01

0.10

3.51

85.56

3.79

0.51

0.12

0.18

6.23

BB

0.01

0.03

0.12

4.97

76.98

6.92

0.61

0.72

9.63

B

0.00

0.03

0.09

0.19

5.15

74.26

4.46

3.76

12.06

CCC/C

0.00

0.00

0.13

0.19

0.63

12.91

43.97

26.78

15.39

Note: The Greater China figures are for the period 2000-2016. D--Default. NR--Not rated. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.


OCTOBER 9, 2017 18


Table 11

Average Two-Year Corporate Transition Rates (%) From/to

AAA

AA

A

BBB

BB

B

CCC/C

D

NR

100.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

AA

8.26

78.51

10.74

0.00

0.00

0.00

0.00

0.00

2.48

A

0.00

4.58

85.11

4.58

0.00

0.00

0.00

0.00

5.73

BBB

0.00

0.00

7.74

78.22

3.81

0.13

0.00

0.00

10.10

BB

0.00

0.00

0.18

5.48

55.58

8.59

0.55

1.28

28.34

B

0.00

0.00

0.00

0.85

8.47

44.92

3.67

5.08

37.01

CCC/C

0.00

0.00

0.00

0.00

0.00

11.76

20.59

38.24

29.41

Greater China (2000-2016) AAA

Global (1981-2016) AAA

75.74

16.08

1.44

0.11

0.19

0.05

0.11

0.03

6.26

AA

0.91

75.48

14.16

1.31

0.19

0.15

0.02

0.06

7.73

A

0.04

3.19

77.22

9.23

0.81

0.29

0.05

0.15

9.02

BBB

0.02

0.19

6.43

73.67

6.01

1.13

0.22

0.52

11.82

BB

0.01

0.05

0.31

8.80

59.40

10.32

1.10

2.26

17.76

B

0.00

0.04

0.16

0.46

8.68

55.13

5.10

8.57

21.86

CCC/C

0.00

0.00

0.17

0.54

1.09

16.58

21.98

35.60

24.05

Note: The Greater China figures are for the period 2000-2016. D--Default. NR--Not rated. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Table 12

Average One-Year Transition Rates For Greater China Corporates By Rating Modifier (2000-2016) (%) From/to

AAA

AA+

AA

AA-

A+

A

BBB BBB-

BB+

BB

BB-

B+

B

B-

CCC

D

NR

100.00

0.00

0.00

0.00

0.00

0.00

0.00

50.00 50.00

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

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 18.18 68.18 13.64

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

4.67 84.11

9.35

A+

0.00

0.00

0.49

7.32 81.95

0.93

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.93

6.83

0.98

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2.44

A

0.00

0.00

0.00

0.48

8.21 80.19

7.25

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

3.86

A-

0.00

0.00

BBB+

0.00

0.00

0.00

0.00

0.64

5.45 85.58

5.13

0.64

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2.56

0.00

0.00

0.00

0.30

9.31

81.38

5.11

0.90

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

3.00

BBB

0.00

0.00

0.00

0.00

0.00

0.00

0.00

10.53 80.35

2.46

0.35

0.00

0.00

0.00

0.00

0.00

0.00

0.00

6.32

BBBBB+

0.00

0.00

0.00

0.00

0.00

0.00

0.36

1.81

4.69 77.62

6.14

0.36

0.72

0.36

0.00

0.00

0.00

0.00

7.94

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

1.19

5.95 59.52 12.50

1.19

0.00

0.60

0.00

0.00

0.00 19.05

BB

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.54

0.54

0.54

8.11 61.62 13.51

0.54

0.00

0.54

0.54

0.54 12.97

BB-

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.40

0.40

1.62

4.45 60.32 10.12

1.62

0.40

0.00

1.21 19.43

B+

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.54

1.63

4.89 53.26 13.04

3.26

1.09

2.17 20.11

B

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

1.31

3.92

4.58 56.86

7.84

0.65

1.96 22.88

B-

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

1.96

0.00

0.00

1.96

0.00

0.00 50.98 17.65

1.96 25.49

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

7.89

2.63

AAA AA+

A- BBB+

2.63 47.37 23.68 15.79



OCTOBER 9, 2017 19


The negative correspondence between ratings and defaults in Greater China holds true over time, as the cumulative average default rates illustrate (see tables 13-14 and chart 7). On average, from 2000-2016, all rated Greater China issuers had a default rate of 0.75% in the first year after they were rated and of 1.44% in the second year. Issuers rated 'BB' had a default rate of 0.67% in the first year after they were rated and of 1.22% in the second year. Issuers rated 'B' had a default rate of 2.06% on average in the first year, 4.89% in the second, and so on. The stability ratios of 'BB-' rated entities are lower than those of 'BB' and 'B+' rated entities because of withdrawals and transitions to 'NR'. This is also true of 'BB+' rated issuers versus 'BBB-' and 'BB' rated issuers. The cumulative average default rates in the 'CCC'/'C' rating category are repeated in years two to 10 because of a limited sample size and a limited number of 10-year periods in the sample years of 2000-2016 in Greater China (six 10-year samples), versus a larger sample of 1981-2016 globally (26 10-year samples). Table 13

Comparison Of Corporate Cumulative Average Default Rates (%) --Time horizon (years)-From/to

1

2

3

4

5

6

7

8

9

10

AAA

0.00

0.00

0.00

0.00

0.00

0.00

N/A

N/A

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

0.67

1.22

1.82

3.40

4.87

5.42

6.28

6.90

6.90

6.90

B

2.06

4.89

7.05

7.71

8.07

8.87

9.30

10.20

10.68

10.68

23.68

35.89

35.89

35.89

35.89

35.89

35.89

35.89

35.89

35.89

Investment grade

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Speculative grade

2.05

3.87

5.04

6.20

7.18

7.80

8.46

9.17

9.36

9.36

All rated

0.75

1.44

1.90

2.37

2.78

3.04

3.33

3.65

3.74

3.74

AAA

0.00

0.03

0.13

0.24

0.35

0.46

0.52

0.60

0.66

0.72

AA

0.02

0.06

0.13

0.23

0.33

0.44

0.54

0.62

0.69

0.77

A

0.06

0.15

0.25

0.38

0.53

0.69

0.88

1.05

1.23

1.41

BBB

0.18

0.51

0.88

1.33

1.78

2.24

2.63

3.01

3.39

3.76

BB

0.72

2.24

4.02

5.80

7.45

8.97

10.26

11.41

12.42

13.33

B

3.76

8.56

12.66

15.87

18.32

20.32

21.96

23.23

24.37

25.43

26.78

35.88

40.96

44.06

46.42

47.38

48.56

49.52

50.38

51.03

Investment grade

0.10

0.27

0.46

0.71

0.96

1.21

1.45

1.67

1.89

2.11

Speculative grade

3.83

7.48

10.63

13.20

15.29

17.01

18.45

19.65

20.71

21.67

All rated

1.52

2.99

4.27

5.35

6.25

7.02

7.67

8.22

8.72

9.18

Greater China (2000-2016)

CCC/C

Global (1981-2016)

CCC/C

Note: The Greater China figures are for the period 2000-2016. N/A--Not applicable. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.


OCTOBER 9, 2017 20


Chart 7

Lower ratings generally correspond with higher default rates, and the default rates in the 'CCC'/'C' category are much higher than 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. Table 14

Greater China Corporate Cumulative Average Default Rates By Rating Modifier (2000-2016) (%) --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

N/A

N/A

N/A

N/A

AA+

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

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


OCTOBER 9, 2017 21


Table 14

Greater China Corporate Cumulative Average Default Rates By Rating Modifier (2000-2016) (%) (cont.) --Time horizon (years)-Rating

1

2

3

4

5

6

7

8

9

10

BB+

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

BB

0.54

1.13

2.40

4.49

6.75

6.75

6.75

6.75

6.75

6.75

BB-

1.21

2.09

2.58

4.80

6.63

7.99

10.15

11.70

11.70

11.70

B+

2.17

5.14

8.32

9.00

9.00

10.68

11.57

13.39

14.38

14.38

B

1.96

3.42

4.22

5.09

6.02

6.02

6.02

6.02

6.02

6.02

B-

1.96

8.22

10.57

10.57

10.57

10.57

10.57

10.57

10.57

10.57

23.68

35.89

35.89

35.89

35.89

35.89

35.89

35.89

35.89

35.89

Investment grade

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Speculative grade

2.05

3.87

5.04

6.20

7.18

7.80

8.46

9.17

9.36

9.36

All rated

0.75

1.44

1.90

2.37

2.78

3.04

3.33

3.65

3.74

3.74

CCC/C


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 85.47%, a three-year of 80.54%, and a five-year of 70.89% (see table 15). 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. Table 15

Corporate Gini Coefficients By Region (%) --Time horizon-Region

One year

Three years

Five years

Seven years

Global

82.31

75.10

71.73

69.50

U.S.

80.66

72.99

69.58

67.53

Europe

90.29

86.02

82.95

78.33

Asia (ex. Japan)

81.77

76.58

70.37

68.09

Greater China

85.47

80.54

70.89

71.23

Note: The Asian (excluding Japan) figures are for the period 1993-2016. The Greater China figures are for the period 2000-2016. Global, U.S., and European figures are for the period 1981-2016. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

As expected, the Gini coefficients decline as the time horizon lengthens because longer time horizons allow for more


OCTOBER 9, 2017 22


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 36.46% of all Greater China corporate issuers (see chart 8). The three-year Lorenz curve shows that speculative-grade issuers constituted 100% of defaulters and only 39.36% of the entire sample (see chart 9). The five-year Lorenz curve shows that speculative-grade issuers constituted 100% of defaulters and only 41.05% of the entire sample (see chart 10). 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 8


OCTOBER 9, 2017 23


Chart 9


OCTOBER 9, 2017 24


Chart 10

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 rating 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 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-'


OCTOBER 9, 2017 25


subordinated debt rating, a 'AA' issuer credit rating usually corresponds to a 'AA-' subordinated rating. S&P Global Fixed Income Research's 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 773 Greater China entities that S&P Global Ratings rated from Jan. 1, 2000, through Dec. 31, 2016. 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 subject 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


OCTOBER 9, 2017 26


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. S&P Global Fixed Income Research conducts its 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. S&P Global Fixed Income Research uses the static pool methodology to avoid certain pitfalls in estimating default rates. This is to ensure that default rates account for rating migration and to allow for default rates to 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 new 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 'NR' (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 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


OCTOBER 9, 2017 27


Jan. 1, 2001. We used the same method to form static pools for 2000 through 2016. 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 rate. 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 16 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 a more useful measure 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 our ratings do not imply a specific probability of default. Cumulative average default rate calculation. 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 16 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 15 pools (95% of those entities that did not default in the first year survived the second year) and 4% for the first 14 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 16-year time horizon, and we based all calculations on the rating experience of that period. Global data are based on a 31-year time horizon. The maturities of most obligations are much shorter than 16 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


OCTOBER 9, 2017 28


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 10, which corresponds to the 2016 static pool, shows that out of all 'A' rated entities at the beginning of that year, 92.27% were rated the same at year-end, while S&P Global Ratings had upgraded 2.35% 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 2000-2015 with the ratings at the end of the years 2000-2016 (see table 11). 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 2016 Annual Global Corporate Default Study.

Appendix II: Additional Tables Table 16

Static Pool Marginal Corporate Default Rates Among All Rated Greater China Ratings (2000-2016) (%) --Time horizon (years)--

Year

Number of 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

0.00

0.00

2001

78

0.00

0.00

0.00

0.00

0.00

0.00

1.28

0.00

0.00

0.00

2002

86

0.00

1.16

0.00

0.00

0.00

1.18

0.00

0.00

0.00

0.00

2003

133

0.75

0.00

0.00

0.00

0.76

0.00

0.00

0.00

0.00

0.00

2004

133

0.00

0.00

0.00

0.75

0.00

0.00

0.76

0.00

0.00

0.00

2005

150

0.00

0.00

0.67

0.00

0.67

0.68

0.00

0.68

0.00

0.00


OCTOBER 9, 2017 29


Table 16

Static Pool Marginal Corporate Default Rates Among All Rated Greater China Ratings (2000-2016) (%) (cont.) --Time horizon (years)--

Year

Number of issuers

1

2

3

4

5

6

7

8

9

10

2006

161

0.62

0.63

0.00

0.63

0.63

0.00

0.64

0.00

0.00

0.00

2007

124

0.81

0.81

0.82

0.83

0.00

0.83

0.00

0.00

0.84

0.00

2008

140

2.14

2.19

0.75

0.00

0.75

0.00

0.00

0.76

0.00

2009

157

2.55

0.65

0.00

0.66

0.00

0.00

0.66

0.67

2010

142

0.70

0.00

0.71

0.00

0.00

0.71

0.00

2011

155

0.00

1.29

0.65

0.66

1.99

0.00

2012

191

0.52

1.05

0.53

2.14

0.00

2013

201

1.00

0.50

2.02

0.00

2014

241

0.41

2.08

0.00

2015

292

2.05

0.00

2016

360

0.00

Summary statistics Marginal average

0.75

(0.16)

(0.32)

(0.05)

(0.12)

(0.20)

0.00

0.00

(0.19)

(0.11)

Cumulative average

0.75

0.59

(0.48)

(0.38)

(0.17)

(0.32)

(0.20)

0.01

(0.19)

(0.30)

Standard deviation

0.83

0.74

0.56

0.61

0.59

0.44

0.45

0.50

0.28

0.00

Median

0.52

0.57

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

2.55

2.19

2.02

2.14

1.99

1.18

1.28

1.43

0.84

0.00

Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Table 17

Static Pool Marginal Corporate Default Rates Among All Investment-Grade Greater China Ratings (2000-2016) (%) --Time horizon (years)--

Year

Number of 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

80

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2006

90

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2007

85

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

2009

107

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2010

105

0.00

0.00

0.00

0.00

0.00

0.00

0.00

2011

113

0.00

0.00

0.00

0.00

0.00

0.00


OCTOBER 9, 2017 30


Table 17

Static Pool Marginal Corporate Default Rates Among All Investment-Grade Greater China Ratings (2000-2016) (%) (cont.) --Time horizon (years)--

Year

Number of issuers

1

2

3

4

5

2012

120

0.00

0.00

0.00

0.00

0.00

2013

133

0.00

0.00

0.00

0.00

2014

164

0.00

0.00

0.00

2015

208

0.00

0.00

2016

269

0.00

6

7

8

9

10

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


Table 18

Static Pool Marginal Corporate Default Rates Among All Speculative-Grade Greater China Ratings (2000-2016) (%) --Time horizon (years)--

Year

Number of 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

0.00

0.00

2001

47

0.00

0.00

0.00

0.00

0.00

0.00

2.13

0.00

0.00

0.00

2002

46

0.00

2.17

0.00

0.00

0.00

2.22

0.00

0.00

0.00

0.00

2003

78

1.28

0.00

0.00

0.00

1.30

0.00

0.00

0.00

0.00

0.00

2004

67

0.00

0.00

0.00

1.49

0.00

0.00

1.52

0.00

0.00

0.00

2005

70

0.00

0.00

1.43

0.00

1.45

1.47

0.00

1.49

0.00

0.00

2006

71

1.41

1.43

0.00

1.45

1.47

0.00

1.49

0.00

0.00

0.00

2007

39

2.56

2.63

2.70

2.78

0.00

2.86

0.00

0.00

2.94

0.00

2008

46

6.52

6.98

2.50

0.00

2.56

0.00

0.00

2.63

0.00

2009

50

8.00

2.17

0.00

2.22

0.00

0.00

2.27

2.33

2010

37

2.70

0.00

2.78

0.00

0.00

2.86

0.00

2011

42

0.00

4.76

2.50

2.56

7.89

0.00

2012

71

1.41

2.86

1.47

5.97

0.00

2013

68

2.94

1.52

6.15

0.00

2014

77

1.30

6.58

0.00

2015

84

7.14

0.00

2016

91

0.00


OCTOBER 9, 2017 31


Table 18

Static Pool Marginal Corporate Default Rates Among All Speculative-Grade Greater China Ratings (2000-2016) (%) (cont.) --Time horizon (years)-Number of issuers

Year

1

2

3

4

5

6

7

8

9

10

Marginal average

2.05

(0.39)

(0.83)

(0.13)

(0.28)

(0.53)

0.00

0.04

(0.42)

(0.25)

Cumulative average

2.05

1.67

(1.22)

(0.96)

(0.41)

(0.82)

(0.53)

0.04

(0.38)

(0.67)

Standard deviation

2.67

2.35

1.78

1.75

2.20

1.21

0.96

1.18

0.98

0.00

Median

1.30

1.48

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

8.00

6.98

6.15

5.97

7.89

2.86

2.27

2.63

2.94

0.00

Summary statistics


Table 19

Average Two-Year Greater China Corporate Transition Matrix (2000-2016) (%) From/to AAA

AAA

AA

A

BBB

BB

B

CCC/C

D

NR

100.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

AA

8.26

78.51

10.74

0.00

0.00

0.00

0.00

0.00

2.48

A

0.00

4.58

85.11

4.58

0.00

0.00

0.00

0.00

5.73

BBB

0.00

0.00

7.74

78.22

3.81

0.13

0.00

0.00

10.10

BB

0.00

0.00

0.18

5.48

55.58

8.59

0.55

1.28

28.34

B

0.00

0.00

0.00

0.85

8.47

44.92

3.67

5.08

37.01

CCC/C

0.00

0.00

0.00

0.00

0.00

11.76

20.59

38.24

29.41


Table 20

Average Three-Year Greater China Corporate Transition Matrix (2000-2016) (%) From/to AAA

AAA

AA

A

BBB

BB

B

CCC/C

D

NR

100.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

12.96

69.44

12.96

0.00

0.00

0.00

0.00

0.00

4.63

A

0.00

5.90

78.86

6.86

0.00

0.00

0.00

0.00

8.38

BBB

0.00

0.00

11.09

69.15

4.56

0.15

0.00

0.00

15.05

BB

0.00

0.00

0.40

8.28

41.41

8.89

1.21

1.82

37.98

B

0.00

0.00

0.00

0.62

11.08

28.62

2.77

7.08

49.85

CCC/C

0.00

0.00

0.00

0.00

0.00

12.90

3.23

32.26

51.61

AA


Table 21

Average Five-Year Greater China Corporate Transition Matrix (2000-2016) (%) From/to AAA

AAA

AA

A

BBB

BB

B

CCC/C

D

NR

100.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00


OCTOBER 9, 2017 32


Table 21

Average Five-Year Greater China Corporate Transition Matrix (2000-2016) (%) (cont.) From/to

AAA

AA

A

BBB

BB

B

CCC/C

D

AA

NR

25.58

52.33

16.28

0.00

0.00

0.00

0.00

0.00

5.81

A

0.00

7.67

71.04

8.91

0.00

0.00

0.00

0.00

12.38

BBB

0.00

0.19

14.40

53.89

4.28

0.19

0.00

0.00

27.04

BB

0.00

0.00

0.49

11.06

24.08

6.14

0.49

4.91

52.83

B

0.00

0.00

0.00

0.00

6.99

13.60

1.10

6.99

71.32

CCC/C

0.00

0.00

0.00

0.00

0.00

0.00

0.00

22.22

77.78


Table 22

Greater China Defaults (2000-2016) Rating prior to default

Rating date for rating prior to default

Issuer

Country

Industry

Default date

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


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.

Hong Kong


2/2/2009

CC

12/16/2008


Asia Aluminum Holdings Ltd.

China


3/17/2009

CC

2/16/2009

Appointment of provisional liquidator

China Glass Holdings Ltd.

China


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


Sino-Forest Corp.

China

Forest and building products/homebuilders

3/30/2012

NR

8/30/2011


Winsway Enterprises Holdings Ltd.

China

Transportation

10/10/2013

CC

8/21/2013

Distressed exchange

China Forestry Holdings Co. Ltd.

China


11/19/2013

CCC-

8/4/2011


LDK Solar Co. Ltd.

China

High tech/computers/office equipment

10/21/2014

NR

9/8/2011


Hidili Industry International Development Ltd.

China

Energy and natural resources

10/22/2014

CC

9/18/2014

Distressed exchange


Reason for default

OCTOBER 9, 2017 33


Table 22

Greater China Defaults (2000-2016) (cont.) Default date

Rating prior to default

Rating date for rating prior to default

Issuer

Country

Industry

Kaisa Group Holdings Ltd.

China


1/5/2015

BB-

5/2/2014

Reason for default Missed principal payment

Renhe Commercial Holdings Co. Ltd.

China

Real estate

1/8/2015

CC

11/26/2014

Distressed exchange

Winsway Enterprises Holdings Ltd.

China

Transportation

4/27/2015

CCC

10/28/2013


Hidili Industry International Development Ltd.

China

Energy and natural resources

11/4/2015

CCC-

4/27/2015

Missed interest and principal payment

China Shanshui Cement Group Ltd.

Hong Kong


11/13/2015

CC

11/6/2015


China Fishery Group Ltd.

Hong Kong

Consumer/service

11/26/2015

CCC+

10/19/2015

Missed loan payment

NR--Not rated. Sources: S&P Global Fixed Income 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 11). The procedure for calculating the Gini coefficients is to divide area B by the total area A plus 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.


OCTOBER 9, 2017 34


Chart 11

Default Studies More analysis and statistics are available in our annual corporate default studies, published on RatingsDirect: • • • • • • • • • • • • • •

2016 U.S. Public Finance Housing Default Study And Rating Transitions 2016 Mexican Corporate And Public Finance Default Study And Rating Transitions 2016 U.S. Public Finance Charter School Default Study And Rating Transitions 2016 Annual Mexican Structured Finance Default Study And Rating Transitions 2016 Annual Canadian Corporate Default Study And Rating Transitions 2016 Annual European Structured Finance Default Study And Rating Transitions 2016 Asia (Excluding Japan) Corporate Default Study And Rating Transitions 2016 Annual Australia And New Zealand Corporate Default Study And Rating Transitions 2016 Annual European Corporate Default Study And Rating Transitions 2016 U.S. Public Finance Higher Education And Nonprofit Organizations Default Study And Rating Transitions 2016 Annual Latin American Corporate Default Study And Rating Transitions 2016 Annual Taiwan Ratings Corp. Corporate Default Study And Rating Transitions 2016 Annual Taiwan Structured Finance Default Study And Rating Transitions 2016 Annual Global Structured Finance Default Study And Rating Transitions


OCTOBER 9, 2017 35

Default, Transition, and Recovery: 2016 Greater China Corporate Default Study And Rating Transitions • • • • • • •

2016 Annual Non-U.S. Local And Regional Government Default Study And Rating Transitions 2016 Annual U.S. Corporate Default Study And Rating Transitions 2016 Annual Global Corporate Default Study And Rating Transitions 2016 Annual Sovereign Default Study And Rating Transitions Japanese Issuer Credit Rating Transitions Study 2016 2016 Annual Japanese Structured Finance Default Study And Rating Transitions 2016 Annual U.S. 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.

Only a rating committee may determine a rating action and this report does not constitute a rating action.


OCTOBER 9, 2017 36

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OCTOBER 9, 2017 37