Australian credit outperforms global competitors

Australia moved swiftly and severely to respond to the covid-19 global pandemic, and it has paid off in spades. Despite recent breakthrough covid cases, Australia’s handling of the virus has helped propel its economy – and its sovereign debt rating – to be one of the strongest in the world.

Australia is one of a few countries whose credit is rated among the highest by Moody’s, S&P and Fitch, according to data analytics firm Credit Benchmark’s recent Credit Trends: Focus on Australia report. The country’s consensus rating is currently in the double A+ category. The report tracked ratings from February 2020 to July 2021.

“Strong balance sheets at the time of the initial outbreak, a robust government response and an export sector that is seeing strong demand have all contributed to what looks like a credit success story,” the firm said of the country’s economic health since the pandemic began. “In credit terms, sections of the Australian economy have so far ridden out the pandemic in reasonable shape.”

In an interview with Private Debt Investor, Michael Crumpler, managing director and global head of contributor relationships at Credit Benchmark, noted that “Australian corporate credit is in pretty good shape comparative to global trends”. Strong credit quality was seen across industries as well, Crumpler said, particularly in consumer goods and services. During the pandemic, some industries, such as industrial transportation and basic materials, improved.

Financials in Australia are of very high quality, with more than 15 percent in the double A category, and showed “very little Covid impact”, according to the report. By comparison, financials declined by about 12 percent globally because of covid, but have recently steadied, the firm said.

Like financials, Australian corporates were of very high quality, outperforming the rest of the world with more than 40 percent of the 389 credits falling into the triple B category. About 70 percent of all corporate credits total were rated investment grade, according to the report. “Australian corporates saw some deterioration, but far less than for other global corporates,” Crumpler said.

Although only 21 percent of the Australian corporate companies in Credit Benchmark’s data were rated double A or single A, that compares very favourably with the global average of 15 percent, the firm said.

Based on industry and sector level, Australia experienced very little damage as a result of the pandemic. Indeed, the proportion in the very-high-risk single b and single c ratings has dropped to around 1 percent from about 2.5 percent at the start of the pandemic, the report said

Still, the future of credit is Australia is not set in stone given the longevity of covid.

“Creditworthiness of individual firms may deviate from the overall consensus trends, but generally speaking, the future is tied to the shape of the economy, which is tied to covid,” Crumpler said of Australia. “If the country can put [the virus] to bed sooner rather than later, pressure on credit quality and risk will be reduced. If it drags on, credit could suffer.”