Asia Inc girds for fallout of credit squeeze

Asian companies will have a tough time raising funds and face weaker export demand if the global credit squeeze persists and a deteriorating U.S. housing market crimps consumer spending.

But most firms in Asia Pacific, where robust consumption provides a driver beyond the traditional reliance on exports, are waiting to see the fallout from the U.S. subprime mortgage crisis

works its way through financial markets.

We believe the subprime 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, the world's top maker of memory chips and LCD panels and the No.3 mobile handset maker.

So far, a handful of financial firms, mostly in Australia, Japan and Taiwan, have reported exposure to the U.S. subprime crisis that has roiled global markets in recent weeks, but to a far lesser degree than has been seen in the West.

Asian corporates are in a strong position as robust nominal GDP 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 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. On Friday, bankers said loss-making Melco-PBL Entertainment was having a hard time finding lenders for its Macau casino projects.

And Asian firms, like their global peers, have seen battered share prices as they have been caught up in the general flight from risk. The MSCI index of Asia-Pacific stocks outside of Japan is off 13.7 percent from its July high even after a 6 percent rise on Monday.

WATCHING THE DEMAND SIDE

Exporters with heavy exposure to the United States could see their sales crimped if consumers and businesses lose confidence.

A slowdown in the U.S. housing market will certainly affect demand for appliances and electronics goods, said an official with South Korea's LG Electronics.

Our U.S. unit is closely watching, but right now we need to wait and see if there's such an impact. There's no change to our sales target or other business plans yet, the official added.

Baoshan Iron and Steel Co, China's top steel maker, said on Monday that it was cutting steel product prices for the fourth quarter of 2007, which industry sources say is a result of weaker demand spawned by the global credit squeeze.

But Australian gold and copper producer Newcrest Mining Ltd said markets for gold and other commodities were likely to be relatively unaffected by the credit markets squeeze, given demand from the twin Asian growth engines of India and China.

The fundamental absorption of commodities is still there and I don't think anyone is suggesting the subprime profile of the U.S. ... detracts from the overall positives, Managing Director Ian Smith said on Friday.

Thai Union Frozen Products, Asia's largest canned tuna exporter, said the impact of credit bottlenecks on its U.S. sales and global expansion plan should be limited.

Our products are basic goods which will not be affected by a slowing economy, said Teerapong Chansiri, president of Thai Union, whose U.S. subsidiaries own the Chicken of the Sea and Empress International brands.

CAPITAL MARKETS CRUNCH

On the fund-raising side, 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.

Big-ticket mergers also face a hard time finding funding.

Financing still exists for deals in Asia, except for perhaps very large deals in some industries which may be impacted, said Eric Mason, managing director and head of the Asian leveraged finance group at U.S. buyout giant Carlyle Group.

ICICI Bank, India's second-largest lender, said it was still providing loans to worthy borrowers.

Fundamentally, the credit risk remains the same. We are telling the clients: 'We are interested. You go ahead, complete your deal', said Chanda Kochhar, deputy managing director.

But three mainland Chinese companies that recently won Hong Kong stock exchange approval for initial public offerings worth up to a combined $700 million have held back from launching investor roadshows while they wait for a clearer direction from the market, sources familiar with the deals said.

That kind of uncertainty is expected to persist until the extent of the fallout from the U.S. subprime crisis is known.

The upheavals on the debt markets will have implications for just about everybody. Everything we're announcing and intend to do take into account the current situation in the debt market, Qantas Airways Ltd. Chief Executive Geoff Dixon told reporters last week.

(Additional reporting by Marie-France Han and Rhee So-eui in SEOUL; Himangshu Watts in MUMBAI, Kennix Chim in HONG KONG, James Regan and Michael Smith in SYDNEY; Kevin Lim in SINGAPORE; Viparat Jantraprap and Pisit Changplayngam in BANGKOK; and Samuel Shen in SHANGHAI)