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Trade war

Credit downgrades accelerate on all sides in US-China trade war

S&P's corporate rating cuts far outpace upgrades

An employee works inside a textile factory in Linhai, Zhejiang province, China. Companies in apparel, energy and automobile parts have been downgraded due to the trade war.   © Reuters

TOKYO -- Credit rating agencies have downgraded listed companies worldwide at rarely seen levels this year, underscoring the risks to the global economy posed by the prolonged U.S.-China trade war.

The 487 downgrades for financial and nonfinancial companies through Aug. 13 outpaced the number of upgrades by 60, data from S&P Global Ratings show. The number of downgrades have not surpassed upgrades for a full year since 2016.

Net downgrades among American companies are at the highest in three years. Among Chinese enterprises, the gap between credit downgrades versus upgrades has reached its worst in two years.

U.S. company Accuride Corporation, which makes wheels and other automotive components, saw its B grade dropped a notch by S&P, which hinted at future downward revisions. Apex Tool Group took a hit on its credit ratings because the products it procures from China are subject to punitive tariffs.

The downgrades have been most pronounced in the energy, automotive and apparel sectors, those exposed directly to the trade war. S&P specifically cited harm to Accuride's earnings from tariffs and trade frictions.

Net profit among listed companies worldwide dipped 4% on the year in the April-June quarter, QUICK FactSet research shows. Asian businesses experienced an aggregate decline in earnings. North American peers secured profit growth overall, but excluding the earnings from leading U.S. tech groups leaves a profit decline of 0.41% based on data available through Thursday.

Businesses also have loaded themselves with debt obtained cheaply amid the monetary easing policies advanced after the global economic crisis.

Total interest-bearing debt at listed companies worldwide, excluding financials, grew to $22.1 trillion at the end of fiscal 2018, QUICK FactSet says, compared with $12.5 trillion at the end of fiscal 2008. During that same period, China's liabilities nearly quintupled to $2.8 trillion.

Qinghai Provincial Investment Group nearly fell into default in February when it was late paying interest on dollar-denominated bonds. S&P downgraded the state-backed aluminum producer by three orders from a B+ to a CCC+.

"Liquidity risk for QIPG remains high even after the company's repayment," S&P noted.

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