Moody's JACI

SEPTEMBER 4, 2012 CORPORATES
SPECIAL COMMENT JACI: A Rating Perspective

Using J.P. Morgan Asia Credit Index1 as the Basis
Table of Contents:
This report examines credit trends and rating movements for issuers in the J.P. Morgan
Asia Credit Index (JACI), most of which are rated by Moody’s. The JACI tracks the total
THE JACI: THREE MAIN TAKEAWAYS 2
return performance of select Asian bonds denominated in US dollars and is a market-
Takeaway one: the index remains highly
concentrated in 10 issuers 2 capitalization weighted index covering 15 Asian markets (excluding Japan and Australia).
Takeaway two: the index is
predominantly driven by sovereigns and » JACI includes some 485 bonds issued by 237 companies, with a total weighted market
quasi-sovereigns 2
Takeaway three: stability predominates
capitalization of $347 billion. We rate 94.3% of the JACI by index weighting.
as the index becomes increasingly
investment-grade; however a positive
» The index has become substantially investment-grade, following the January 2012
exists driven by the Philippines upgrade of Indonesia to Baa3. About 72.1% of the index is now rated Baa3 and above,
sovereign rating 4 and only 22.2% is rated non investment-grade. This compares to 61% of the index
THE JACI: THE RATING PROFILE 5
being rated investment grade in July 2011. The average weighted rating for the entire
JACI: SPREADS VERSUS RATINGS 5
THE JACI: BREAKDOWN BY COUNTRY 6 index is Baa1.
Overview 6 » The top 10 issuers combined represent 35.9% of the JACI, reflecting a fairly high
THE JACI: BREAKDOWN BY INVESTMENT-
GRADE AND NON INVESTMENT GRADE 12
degree of issuer concentration. Three of the top 10 issuers are sovereign credits (the
JACI INVESTMENT-GRADE SUB-INDEX 12 Philippines, Indonesia and Korea). As such, the index is even more concentrated when
JACI NON INVESTMENT-GRADE SUB- taking into account Government-Related Issuers (GRI) and banks, whose ratings could
INDEX 14
change as a direct function of any changes to sovereign debt ratings.
THE JACI: BREAKDOWN BY SECTOR 16
JACI SOVEREIGN SUB-INDEX 16 » The index is skewed toward sovereigns and quasi sovereigns which together account
JACI QUASI SOVEREIGN SUB-INDEX 17 for 43.01% of total exposure. The sovereign ratings for China and the Philippines are
JACI CORPORATE SUB-INDEX 18 on a positive outlook. The index’s exposure to Philippines government bonds in
particular as well as quasi sovereigns and banks in those countries indicate an upward
Analyst Contacts: bias in the average weighted rating of the index as a whole exists.
HONG KONG +852.3551.3077 » The mix of rating outlooks in the index is substantially stable at 60.2%. The split
Laura Acres +852.3758.1310
between positive and negative outlooks is relatively even. However as the Philippines,
Senior Vice President which is the single-largest issuer in the index, is on a positive outlook it suggests that the
laura.acres@moodys.com index has a moderately upward rating bias during the next 12-18 months.
Stephen Tang +852.3758.1534
» This report reflects Moody’s views and was not done in collaboration with J.P. Morgan,
Associate Analyst
stephen.tang@moodys.com although it was based on JACI composition data they provided as at 28 August 2012
SYDNEY +612.9270.8199 » In the charts below and throughout this report, the ratings and index market weightings
Brian Cahill +612.9270.8105
are as at 28 August 2012. All issuer categorizations such as those based on sovereign
Managing Director – Asia Pacific Corporate and linkage, geography or sector are based on J.P. Morgan classifications; all ratings
Financial Institutions information is based on Moody’s data.
brian.cahill@moodys.com
1
Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The JACI components are used with
permission. The JACI components may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright 2012, JPMorgan Chase & Co. All
rights reserved.
CORPORATES
The JACI: three main takeaways
Takeaway one: the index remains highly concentrated in 10 issuers

At its simplest level, the JACI can be sub-divided into investment-grade and non investment-grade. In
terms of weighting it is heavily skewed toward investment-grade issuers, at 72.1%. This has increased
from 61% at the time of our last JACI report, largely as a result of Indonesia’s upgrade to Baa3, with a
stable outlook from Ba1/positive in January 2012, which also precipitated the upgrade of two GRIs by
a similar and equal amount.
When we look at the top 10 issuers in the index, whether corporate or sovereign, a different picture
emerges: the top 10 issuers account for 35.9% of the overall index, as shown in Exhibit 1.
EXHIBIT 1
Top 10 Issuers Account For About 36% Of the Overall Index
Top 10 Issuers Country Sector Rating Outlook Weighting
Philippines Government Philippines Sovereign Ba2 Positive 9.10%
Indonesia Government Indonesia Sovereign Baa3 Stable 8.29%
Hutchison Whampoa Limited Hong Kong Industrials A3 Negative 4.48%
Export-Import Bank of Korea Korea Quasi-Sov Aa3 Stable 3.92%
Korea Development Bank* Korea Quasi-Sov Aa3 Negative 2.30%
Petroliam Nasional Berhad (Petronas) Malaysia Quasi-Sov A1 Stable 1.85%
Korea Government Korea Sovereign Aa3 Stable 1.66%
Perusahaan Listrik Negara (P.T.) Indonesia Quasi-Sov Baa3 Stable 1.57%
China National Offshore Oil Corporation China Oil & Gas Aa3 Stable 1.39%
ICICI Bank Limited India Financials Baa3 Stable 1.32%
35.88%
* Bonds issued by KDB have a stable outlook, in line with the sovereign, reflecting the fact that a privatization of KDB would result in existing bonds
outstanding being explicitly guaranteed by the Korean government
Source: JP Morgan/JACI
Takeaway two: the index is predominantly driven by sovereigns and quasi-sovereigns

Sovereign rating actions have the greatest influence on the movement of the index. Sovereigns directly
make up 21.4% of the index, but their movement also affects GRIs and related entities whose ratings
may automatically change as a direct result of a sovereign rating movement. This is particularly true
for the large number of state-owned or state-controlled utilities and oil and gas companies, which are
so prevalent in the index.
Within the top 10 issuers, there is also a clear degree of sensitivity of the index to any Philippine and
Indonesian sovereign rating action. Any rating movement would be magnified when the individual
small holdings in GRIs, such as PT Perusahaan Listrik Negara, or PLN, (Baa3 stable) in Indonesia or
Power Sector Assets and Liabilities Management Corporation, or PSALM, (Ba2 positive) in the
Philippines, are taken into account, as these entities may be upgraded in line with the sovereign.
2 SEPTEMBER 4, 2012 SPECIAL COMMENT: JACI: A RATING PERSPECTIVE: USING J.P. MORGAN ASIA CREDIT INDEX AS THE BASIS
CORPORATES
The Philippines: Philippine government bonds make up the largest proportion of the index and
account for about 9.1% of its total market capitalization. This figure rises to about 10.1% if we
include PSALM’s holdings. PSALM is wholly owned and controlled by the Philippine government
and its ratings are directly linked to the sovereign. PSALM manages all power generation-related assets,
liabilities and contracts with independent power producers in the Philippines. We changed the outlook
on the debt ratings of PSALM following our change of the sovereign’s outlook to positive in May
2012.
Indonesia: The ratings of PLN, Indonesia’s wholly owned electric utility, and the country’s state-
owned oil company Pertamina (Baa3 stable), will also be equally and directly affected by any
movement in Indonesia’s sovereign rating. This was most recently evident in January 2012 when both
corporates were upgraded to Baa3 in line with the sovereign. As such, a move in the sovereign could
result in the index moving 11.1%.
Korea: While they do not individually appear in the top 10, the Korean GRIs and utility-related assets,
which are closely linked to the sovereign rating, are important2. Korean government-owned (both
direct and indirect) companies comprise 7.7% of the index, with Korean government bonds
accounting for a further 1.7%. This implies that up to 9.3% of the index could move in tandem with
any change in Korea’s sovereign rating (Aa3 stable).
As Exhibit 2 shows, GRIs and sovereigns account for some 45.3% of the index (21.9% are direct
sovereign issuers), which could move as sovereign ratings change. Of the sovereign and GRI exposures
in the index currently, China, Hong Kong, and the Philippines have a positive outlook indicating an
upward bias in the average weighted rating should those sovereigns be upgraded. Exhibit 3 shows the
distribution of GRIs by country.
EXHIBIT 2 EXHIBIT 3
Sovereign and GRIs by Rating Category Indonesian, Philippines and Korean Sovereign /
GRI Ratings Dominate
GOV GRI
16% GOV GRI
12%
14%
12% 10%
% of index capitalization
10% 8%
8% 6%
6% 4%
4% 2%
2% 0%
0%
Aaa/Aa A Baa Ba B/Caa
Note: GRI stands for government-related issuer.

Sources: JP Morgan/JACI
2
See “Korean Government Related Issuers: Answers to Frequently Asked Questions” published 27 August 2012
CORPORATES
Takeaway three: stability predominates as the index becomes increasingly investment-

grade; however a positive bias exists driven by the Philippines sovereign rating
As Exhibit 4 shows, rating outlooks for companies in the index are broadly stable: 60.2% have ratings
with stable outlooks, down from 81% in June 2011.
However this belies the upward rating movement we have seen during that time, particularly as both
Indonesia and Korea have been upgraded: to Baa3 stable and Aa3 stable, respectively. In May we
changed the outlook on the Philippine government Ba2 rating to positive from stable. Given the
Philippines is the largest issuer in the index it suggests that there is a positive ratings bias, as some
10.1% of the index could be affected should the Philippines be upgraded.
Compared with our July 2011 report the number of companies in the index with positive outlooks has
increased considerably, with the average weighted rating expected to increase during the next 12-18
months. The proportion of the index displaying a negative bias (that is either on review for downgrade
or on a negative outlook) has remained fairly static and is currently at 18.5% (versus 15% in June
2011).
Issuers with negative outlooks are concentrated in three areas: China-based corporates (2.2%), Hong
Kong-based corporates (6.6%, given the relatively heavy weighting of Hutchison Whampoa, the
largest non-government issuer in the index), and certain Korean banks and corporates (3.2%)
including The Korea Development Bank (Aa3 negative).
EXHIBIT 4 EXHIBIT 5
The Index Has A Stable Outlook Philippines Accounts For Most Positive
Nil Momentum
5.7%
RUR DG STA POS NEG RUR DG Unrated
1.6%
25%
NEG
16.8% 20%
15%
10%
POS
15.7% 5%
STA
60.2% 0%
Note: URPU and URPD stand for under review for possible upgrade or possible downgrade.
CORPORATES
The JACI: the rating profile
The JACI includes some 485 bonds issued by 237 companies with a total weighted market
capitalization of $347 billion. We rate 94.3% of the JACI’s issuers: rated investment-grade issuers
represent 72.1% of the index, and non investment-grade issuers represent about 22.2%, as Exhibit 6
shows. The average weighted rating for the index is Baa1.
EXHIBIT 6
The Index is Substantially Comprised of Investment-Grade Issuers
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
B1
Ba1
Aaa
A1
Baa1
Aa1
B3
Caa1
B2
Ba3
A3
Ba2
Baa3
A2
Aa3
Baa2
Unrated
Caa2
JACI: spreads versus ratings

We have created an index which looks at the average daily spread on the JACI compared with the
average daily weighted rating of the various rated constituents of the JACI. The two measures were
based to zero on 9 March 2012 and are monitored daily. Exhibit 7 shows the level of movement in
spreads relative to the underlying ratings of the issuers in the index; the wider the positive spread
differential the more negative market pricing than underlying ratings would imply. Conversely the
greater the negative spread differential the more positive market sentiment is, relative to ratings. The
rating change line moves down as ratings improve and moves up as ratings are downgraded.
EXHIBIT 7
CDS Are Inherently More Volatile Than Ratings
Rating % change Blended Spread % change
20%
15%
10%
5%
0%
-5%
-10%
-15%
9-Mar-12 30-Mar-12 20-Apr-12 11-May-12 1-Jun-12 22-Jun-12 13-Jul-12 3-Aug-12 24-Aug-12
CORPORATES
The JACI: breakdown by country
Overview
The index is made up of bonds issued from 15 countries across Asia. As Exhibit 8 shows Korean bonds
form the single largest country component of the JACI (20.7%), followed by bonds issued by Hong
Kong-based companies (16.1% in total, 13.1% rated). Korean corporate-based issuance has a weighted
average rating of A1, and Hong Kong-based issuance has a weighted average rating of A3. These
ratings are one to three notches higher than the average rating for the index, which is Baa1. Singapore
actually has the highest average weighted rating in the index, although this is due to the inclusion of
Temasek (Aaa stable) and PSA International (Aa1 stable), which account for 1.74% of the index.
Bonds from the Philippines, Indonesia and China account for another sizeable chunk of issuance and
represent more than 40.9% of the JACI’s total market capitalization. While each of these countries has
experienced upward rating pressure during the past five years, the average rating of issuance in these
three markets is lower than Korea and Hong Kong: from Baa2 in the case of China to Ba2 for the
Philippines.
EXHIBIT 8
Korean Bonds Form the Single Largest Country Component of the JACI
Index Capitalization Weighted Average Rating
25% Aa2 Aa1
Aa2
A1
Aa3
20%
A3 A2 A1
Baa1 A2
15% Baa2 A3
Baa1
Baa3 Baa3
Baa3 Baa2
10% Baa3
Ba2 Ba1
5%
Ba2
Ba3
B1
0%
Korea China Indonesia Hong Kong Philippines India Singapore Malaysia Thailand Others Unrated
For Indonesia, Philippines, India and Thailand, the average weighted rating for companies within
those countries is the same as their respective sovereign ratings, suggesting that any change in the latter
will affect the former.
Overall, Asia-based sovereigns have been more likely to have their ratings or outlooks upgraded than
face downward pressure during the past five years, particularly when compared with Europe. Exhibit 9
provides a summary of sovereign ratings for each of the markets represented in the index.
CORPORATES
EXHIBIT 9
Sovereign Ratings as of 28 August 2012
Foreign Currency Ceilings Local Currency Ceilings Government Bond Ratings
Bonds Bank Deposits Bonds Deposits Foreign Currency Local Currency

China Aa3 Aa3 Aa3 Aa3 Aa3/pos Aa3/pos
Hong Kong Aaa Aa1 Aaa Aaa Aa1/pos Aa1/pos
India Baa2 Baa3 A1 A1 Baa3/sta Baa3/sta
Indonesia Baa2 Baa3 A3 A3 Baa3/sta Baa3/sta
Korea Aa1 Aa3 Aa1 Aa1 Aa3/sta Aa3/sta
Macau Aa1 Aa3 Aaa Aaa Aa3/sta Aa3/sta
Malaysia A3 A3 Aa2 Aa2 A3/sta A3/sta
Mongolia Ba2 B2 Baa1 Baa2 B1/sta B1/sta
Pakistan B3 Caa2 B1 B1 Caa1/neg Caa1/neg
Philippines Baa3 Ba2 A2 A2 Ba2/pos Ba2/pos
Singapore Aaa Aaa Aaa Aaa Aaa/sta Aaa/sta
Sri Lanka - - - - B1/pos -
Taiwan Aa3 Aa3 Aa3 Aa3 Aa3/sta Aa3/sta
Thailand A2 Baa1 Aa2 Aa2 Baa1/sta Baa1/sta
Vietnam B1 B2 Ba2 Ba2 B1/neg B1/neg
Source: Moody’s Investors Service
Outlooks for sovereign ratings are mostly stable, with the exception of China, Hong Kong, and the
Philippines, which all have positive outlooks. While a positive bias has emerged in the index it is not as
distinct as one would imagine because of the decision to partially delink a number of Korean GRIs
from the sovereign, which meant that the upgrade to the sovereign rating in August did not precipitate
an upgrade for a number of the Korean GRIs at the same time3. Pakistan and Vietnam have negative
outlooks, although together these countries account for only six bond issues in the index, totaling a 1%
weighting. As such, any rating movement for either country will have a minimal impact on the index.
More broadly, ratings for the four countries in the region with the most active rating profiles (China,
Korea, Indonesia and the Philippines) have shown steady upward progression during the past five
years, as shown in Exhibit 10.
3
See "Korean Government Related Issuers: Answers to Frequently Asked Questions", published August 21, 2012
CORPORATES
EXHIBIT 10
China, Indonesia, Korea and the Philippines’ Ratings Have Moved Steadily Higher
China Indonesia Philippines Korea
Aa1
Aa3
A2
Baa1
Baa3
Ba2
B1
B3
Source: Moody’s Investors Service
For more information on sovereign ratings for Korea, China, Hong Kong, Indonesia and the
Philippines please refer to our Credit Opinions published on Moodys.com.
Korea
Korean issuers have the highest concentration in the index, at 20.7%, and the weighted average rating
for Korean issuance is A1. We upgraded Korea’s government bond rating to Aa3 stable on 27 August,
2012. This action was prompted by Korea's strong fiscal fundamentals, which give it a relatively large
degree of policy space to cope with contingent domestic risks and external shocks; its resilience to
external shocks; and macro-prudential regulatory measures and improved risk management which have
reduced banking sector vulnerabilities. While geopolitical tensions may remain heightened as the
leadership transition evolves in Pyongyang, our assessment is that military conflict and the collapse of
the Democratic People's Republic of Korea remains a low probability—but high severity—event risk.
A substantial amount of the Korean portfolio comprises GRIs and “quasi” sovereign names,
particularly in the utility segment. In this segment, the fundamental, or standalone, credit profile is
relatively weak but the ratings benefit from a substantial degree of uplift because of indirect state
ownership and control. These ratings are intrinsically linked to the sovereign rating. However, the
diverging credit profiles of Korean corporate GRIs and the government mean the GRI’s ratings are
unlikely to rise.
CORPORATES
Exhibit 11 highlights the top five Korean issuers in the index, which account for 10.3% of the index’s
market capitalization. There is a clear bias toward the financial sector.
EXHIBIT 11
The Top Five Korean Issuers Are Mostly In the Financial Sector
Top Five Korean Issuers Sector Rating Outlook Weighting
Export-Import Bank of Korea Quasi-Sovereign Aa3 stable 3.92%
Korea Development Bank* Quasi-Sovereign Aa3 negative 2.30%
Korea Government Sovereign Aa3 stable 1.66%
Woori Bank Financials A1 stable 1.20%
Korea National Oil Corporation (KNOC) Quasi-Sovereign A1 stable 1.18%
10.34%
* Bonds issued by KDB have a stable outlook, in line with the sovereign, reflecting the fact that a privatization of KDB would result in existing bonds
outstanding being explicitly guaranteed by the Korean government
Our Banking System Outlook for Korea has a stable outlook for the banking system during the next
12-18 months. The stable outlook reflects our expectation of a relatively stable operating environment
that will support the asset quality of the banks and loan demand, despite headwinds in the global
economy.
The ratings of Korean financials in the index reflect levels of government and systemic support based
on joint default analysis, which have positioned bond ratings significantly above their baseline credit
assessments. The Export-Import Bank of Korea’s bond rating benefits from high government support
assessed under the GRI methodology, reflecting its key policy role in financing trade. Korea
Development Bank also has an important policy role, but we rate it as a bank, and a high probability
of government support has been layered onto its bank financial strength ratings. Lastly, the bond
ratings of large commercial banks, such as Woori Bank, reflect the high degree of government support
we would expect them to receive, given their size and market positions in the domestic banking sector.
For a more detailed analysis of the Export-Import Bank of Korea, Korea Development Bank, Woori
Bank and KNOC, please refer to our Credit Opinions published on Moodys.com.
Hong Kong
Hong Kong-based issuers are the second-largest contributor to the index, accounting for 16.11%, and
the weighted average rating for Hong Kong issuers is A3. Hong Kong's Aa1 government bond rating
reflects the Special Administrative Region, or SAR’s, very high economic resilience, very high
government financial strength and some susceptibility to event risk. Economic resilience is
demonstrated by the very strong economy, with very high per capita income and competitiveness in a
number of areas, including financial services and international trade. In addition, Hong Kong's
institutions are very strong in the areas of governance, rule of law, and transparency. As a result, we
believe the SAR has a high degree of economic resilience.
Figure 12 highlights the top five Hong Kong-based issuers in the index; together they account for
7.6% of the index. Conglomerates dominate this segment, particularly Hutchison Whampoa, given
that it is the largest non-government issuer in the index.
CORPORATES
EXHIBIT 12
Conglomerates Predominate Among Hong Kong Issuers
Top Five Hong Kong Issuers Sector Rating Outlook Weighting
Hutchison Whampoa Limited Industrials A3 negative 4.48%

Bank of China (Hong Kong) Limited Financials Aa3 stable 1.03%
CITIC Pacific Limited Industrials Ba1 negative 0.70%
Noble Group Ltd Industrials Baa3 negative 0.69%
Swire Pacific Limited Industrials A3 stable 0.69%
7.59%
Chinese banks do not feature heavily in the index. However, Bank of China (Hong Kong) Ltd., at
1.03%, is not only one of the largest Hong Kong-based holdings but it is also the single largest
financial institution-based bondholding. This entity is the Hong Kong subsidiary of the mainland
parent and plays an important role in debt issuance for the wider group. Our Aa3 rating for Bank of
China (Hong Kong) Ltd. incorporates a very high probability of parent company support and systemic
support from the Hong Kong government.
For a more detailed analysis of Hutchison Whampoa, Bank of China (Hong Kong) Ltd, CITIC
Pacific Limited, Noble Group and Swire Pacific please refer to our Credit Opinions published on
Moodys.com.
Indonesia
Issuers from Indonesia represent only 13.4% of the overall index, but there is a high degree of
concentration, given that the top five account for 11.7% (see Exhibit 13). Indonesian issuers’
contribution to the index is surprisingly low given the amount of high-yield bond issuance from
Indonesia in recent years.
EXHIBIT 13
Indonesian Component Is Dominated By The Government And GRIs
Top Five Indonesian Issuers Sector Rating Outlook Weighting
Indonesia Government Sovereign Baa3 stable 8.29%

Perusahaan Listrik Negara (PLN.) Quasi-Sovereign Baa3 stable 1.57%
Pertamina (Persero) Quasi-Sovereign Baa3 stable 1.27%
4
Bumi Resources Tbk Industrials B1 stable 0.30%
Berau Coal Energy TBK Industrials B1 stable 0.29%
11.72%
As with the Philippines, the Indonesian component is heavily weighted to the government and GRIs
such as PLN and Pertamina, which are both rated Baa3 with stable outlooks.
4
See “Indonesian Coal Miners Resilience Tested if Prices Remain Low” published 21 August 2012
CORPORATES
In January 2012, we upgraded Indonesia’s sovereign rating to Baa3, reflecting its economic resilience,
improving government debt position and the central bank’s foreign currency reserves, as well as
improved prospects for foreign direct investment inflows, including: its economic resilience and
sustained macroeconomic balance; an improving government debt position and the central bank's
foreign currency reserves; and improved prospects for foreign direct investment inflows, which are
expected to fortify Indonesia's external position and economic outlook.
For a more detailed analysis of PLN, Pertamina, Bumi Resources and Berau Coal Energy please refer
to our Credit Opinions published on Moodys.com
China
Chinese issuers account for only 15.5% of the index, with an average weighted rating of Baa2. This is
surprising given their dominance of the Asia-Pacific high-yield corporate bond markets.
The outlook for China's Aa3 foreign and local currency bond ratings is positive, supported by
favorable medium-term economic growth prospects, as well as by strong government debt dynamics.
The economy’s scale provides stability against shocks and offsets institutional weaknesses associated
with a relatively low per capita income level. However, tight control over local government finances
and a new wave of reform, especially in the financial system, is necessary for China to sustain rapid and
stable economic growth throughout the rest of this decade.
Exhibit 14 highlights the top five China-based issuers in the index. The composition is mixed, with
no one segment dominating.
EXHIBIT 14
The Top Five Chinese Issuers Are Spread Across Segments
Top Five Chinese Issuers Sector Rating Outlook Weighting
China National Offshore Oil Corporation Oil & Gas Aa3 stable 1.39%
China National Petroleum Corporation Oil & Gas Aa3 positive 0.96%
China Petrochemical Corporation Quasi-Sov Aa3 stable 0.94%
Country Garden Holdings Company Limited Industrials Ba3 stable 0.69%
Sinochem Hong Kong (Group) Company Limited Quasi-Sov Baa1 stable 0.63%
4.61%
The wider Chinese portfolio comprises local property developers, which are typically rated in
speculative-grade territory. Many of these names have been extremely active in raising US dollar-
denominated bonds, particularly in the first half of 2011, hence their impact on the overall weighted
rating outcome for the Chinese corporate segment of the index.
For a more detailed analysis of CNOOC, Country Garden, Sinochem Hong Kong, China National
Petroleum Corporation and China Petrochemical Corporation please refer to our Credit Opinions
published on Moodys.com.
CORPORATES
Philippines
Total Philippine issuance accounts for 12% of the overall index, with the top five issuers comprising
10.7% of this (see Exhibit 15).The Philippine government is the largest single issuer in the index,
comprising 9.1% of the total. Its weighting increases to 10.1% if the weightings of PSALM are
included, given that PSALM is wholly state-owned.
The Philippines only has one investment-grade issuer: Philippines Long Distance Telephone
Company (PLDT), which has Baa3 positive local and foreign currency bond ratings. PLDT accounts
for 0.2% of the index. The foreign currency bond rating is in line with the country ceiling and both
ratings are two notches higher than the government rating of Ba2.
The outlook on the Philippines sovereign was changed to positive on 29 May 2012, reflecting our
expectation of a continued trend in fiscal and debt consolidation and the enhanced finance-ability of
government debt.
EXHIBIT 15
The Philippine Government Is The Largest Single Issuer in the Index
Top Five Philippines Issuers Sector Rating Outlook Weighting
Philippines Government Sovereign Ba2 positive 9.10%
PSALM Quasi-Sov Ba2 positive 1.02%
SM Investments Corp Industrials Unrated Unrated 0.24%
Philippine Long Distance Telephone Company Media & Telecom Baa3 positive 0.21%
BDO UNIBANK, INC Financials Ba2 stable 0.17%
10.73%
For a more detailed analysis of PSALM, PLDT, and BDO Unibank please refer to our Credit
Opinions published on Moodys.com.
The JACI: breakdown by investment-grade and non investment grade
Following the upgrade to Baa3 of the Indonesian government some 72.1% is now investment-grade,
being rated Baa3 and above, and only 22.2% is non investment-grade.
JACI investment-grade sub-index
Investment-grade names make up 72.1% of the overall index as represented by 136 rated companies
issuing 330 bonds across 10 countries; the average weighted rating is A3. Exhibits 16 and 17 show the
distribution of the investment-grade sub-index. There are very clear concentrations in Korea and Hong
Kong, which reflects the high degree of exposure to Korean government and quasi government issuers
and, in the case of Hong Kong, the high exposure to Hutchison Whampoa.
CORPORATES
EXHIBIT 16 EXHIBIT 17
Baa Rated Issuers Predominate Korea is the Largest Investment-Grade Segment
Aaa of the Index
2.0% Index Capitalization Weighted Average Rating
25% Aa1
Baa Aa1
39.1% Aa
27.7% 20% Aa2
A1 Aa3
15% A2 A2 A1
A2
A2
10% Baa1 A3
Baa2 Baa1
5% Baa3 Baa3 Baa2
Baa3
A 0%
31.2%
Exhibit 18 details the top 10 investment-grade issuers based on weighting. The top 10 issuers account
for only 28.1% of the index versus 72.1% for the entire investment-grade grouping. The composition
of the investment-grade sub-index has altered quite dramatically since January 2012, following the
upgrade of the Indonesian government to Baa3.
EXHIBIT 18
The Index Shows A High Degree Of Concentration To 10 Issuers
Top 10 Investment Grade Issuers Sector Country Rating Outlook Weighting
Indonesia Government Sovereign Indonesia Baa3 Stable 8.29%
Hutchison Whampoa Limited Industrials Hong Kong A3 negative 4.48%
Export-Import Bank of Korea Quasi-Sov Korea Aa3 stable 3.92%
Korea Development Bank Quasi-Sov Korea Aa3 negative 2.30%
Petroliam Nasional Berhad (Petronas) Quasi-Sov Malaysia A1 Stable 1.85%
Korea Government Sovereign Korea Aa3 stable 1.66%
Perusahaan Listrik Negara Quasi-Sov Indonesia Baa3 stable 1.57%
China National Offshore Oil Corporation Oil & Gas China Aa3 stable 1.39%
ICICI Bank Limited Financials India Baa3 stable 1.32%
DBS Bank Ltd. Financials Singapore Aa1 negative 1.30%
28.08%
Three issuers in the top 10 have negative outlooks, and the rest are stable. Hutchison Whampoa has
been on negative outlook since April 2009 and was briefly under review for possible downgrade before
the ratings were affirmed at A3 negative in October 2010.
Conglomerates are the most prominent corporate type, reflecting Hutchison Whampoa’s position as
one of the single largest components of the index. Malaysia’s Petroliam Nasional Berhad, or Petronas,
(A1 stable) is the single largest oil and gas company in the index and one of the few which is rated
higher than the sovereign despite being wholly owned by the Malaysian government (A3 stable). This
CORPORATES
reflects Petronas' very strong fundamental strength and the low likelihood that it would be affected in
the event of a general foreign currency debt payment moratorium in Malaysia.
JACI non investment-grade sub-index
The non investment-grade portion of the index includes 62 rated issuers and 111 bonds across 12
countries and accounts for 22.2% of the overall index. Exhibits 19 and 20 show the spread of issuance
based on weighting.
Ba2 Rated Issuers Predominate Philippines is Largest Speculative-Grade Issuing
B3 and
Market
Below Index Capitalization Weighted Average Rating
4.0% Ba1 12%
B2 10.2% Ba1
3.6% Ba2 Ba2 Ba1
10% Ba2
Ba2
Ba3
B1 8% Ba3 Ba3
16.9% Ba3
B1 B1 B1
6% B1
B2
4%
Ba3 B3
Caa1
12.3% Ba2 2%
53.0% Caa1
0%
The Philippines accounts for the largest non investment-grade component. This is unsurprising, given
that the Philippines government is the index’s single largest issuer. China now has the second-largest
grouping of non investment-grade names, at 5.1% of the total index, despite the sovereign’s Aa3
positive rating. This reflects the amount of high-yield issuance from that market during the past 18
months, especially from Chinese property developers which have dominated high-yield issuance in the
region recently. It also reflects the Indonesian sovereign and related GRIs’ movement to investment-
grade.
The ratings of a number of Chinese property5 issuers have been under pressure recently because of
lower than expected sales and increased government regulation. On 23 May we affirmed our negative
outlook for the Chinese property sector because we anticipate continued weakening in the sector’s
fundamentals during the next 12 months, further pressuring cash flows and balance-sheet liquidity.
Onshore and offshore credit to the sector is still tight and we do not expect any improvement in the
near term.
The 10 largest non-investment-grade issuers (see Exhibit 21) account for approximately 14.7% of the
total index. The Philippines government and PSALM account for 10.11% of the total index.
5
See “China Property Focus” published 28 August 2012
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EXHIBIT 21
Speculative-Grade Issuance Concentrated In The Philippines
Top 10 Non Investment-Grade Issuers Sector Country Rating Outlook Weighting
Philippines Government Sovereign Philippines Ba2 positive 9.10%
Power Sector Assets & Liabilities Mgmnt Quasi-Sov Philippines Ba2 positive
Corp. (PSALM) 1.02%
Vedanta Resources Plc Industrials India Ba1 negative 0.86%
Sri Lanka Government Sovereign Sri Lanka B1 positive 0.77%
CITIC Pacific Limited Industrials Hong Kong Ba1 negative 0.70%
Country Garden Holdings Company Limited Industrials China Ba3 stable 0.69%
Agile Property Holdings Limited Industrials China Ba2 stable 0.50%
Evergrande Real Estate Group Limited Industrials China B1 negative 0.39%
Pakistan, Government of Sovereign Pakistan Caa1 negative 0.37%
Shimao Property Holdings Limited Industrials China Ba3 negative 0.36%
14.74%
Vedanta is the largest non-government linked, non investment-grade issuer, which is largely because of
the $1.65 billion of debt it issued in the second quarter of 2011. Its Ba1 rating reflects its low-cost
position, business diversity, its proven track record implementing capacity expansions and its solid
overall liquidity profile. Vedanta's rating also reflects its earnings generation, underpinned by its
acquisition of Cairn India Ltd. in December 2011, but is held back by the rapid deterioration in
prospects for base metals and iron ore. While capital investment can be slowed to compensate for
weaker operating cash flow, in such circumstances Vedanta's refinancing requirements over the next
nine months have assumed greater significance.
Country Garden is the third largest non-GRI, non investment-grade issuer. Its Ba3 rating reflects its
large size, good experience in suburban property development and its strong sales execution. The
rating is also supported by the company's large and low-cost land bank which offers pricing flexibility,
and thus significant advantages in a down market. At the same time, the rating is constrained by the
company’s rapid growth model, moderately high debt leverage, and reliance on cash flow
contributions from Guangdong Province.
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The JACI: breakdown by sector
Non Sovereigns Predominate Country Risk is Concentrated in Korea, Hong Kong
and China
Others
Sovereign 4.8% Korea
Malaysia
21.4% 20.7%
4.4%
Singapore
6.3%
India
6.9%
Corporates Quasi-Sov
Hong Kong
57.0% 21.6% Philippines 16.1%
12.0%
Indonesia
13.4% China
15.5%
JACI sovereign sub-index
Sovereign components make up 21.4% of the overall index, representing eight countries. Exhibits 24
and 25 show the distribution of the sovereign sub-index, which is heavily weighted to the Philippines
and Indonesia.
Philippines is the Largest Sovereign Issuer in the Top Five Sovereign Issuers Show A Positive Bias
Index
Hong Kong Pakistan China Top Five
1.8% 1.7% 1.4% Sovereign Issuers Rating Outlook Weighting
Vietnam
2.6% Philippines Ba2 positive 9.10%
Sri Lanka Indonesia Baa3 stable 8.29%
3.6% Philippines
Korea 42.4% Korea Aa3 stable 1.66%
7.8%
Sri Lanka B1 positive 0.77%
Vietnam B1 negative 0.56%
20.38%
Indonesia
38.7%
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JACI quasi sovereign sub-index
Quasi sovereign components make up 21.6% of the overall index. Exhibits 26 and 27 provide further
information on the distribution of the quasi-sovereign sub-index, both by country and rating level.
Korea is by far the largest component in this sub index, given the number of Korean government-
owned utilities in the index. Indonesia, through Pertamina and PLN, is the second-largest component
of the quasi-sovereign grouping.
EXHIBIT 26
Most Quasi Sovereigns Are Based in Korea
Aaa Aa A Baa Ba B
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Korea Indonesia China Malaysia Singapore Philippines Hong Kong Others
EXHIBIT 27
Korean Banks Are The Largest Quasi-Sovereign Issuers In The Index
Top Five Quasi-Sovereign Issuers Country Rating Outlook Weighting
Export-Import Bank of Korea Korea Aa3 stable 3.92%
Korea Development Bank Korea Aa3 negative 2.30%
Petroliam Nasional Berhad (Petronas) Malaysia A1 stable 1.85%
Perusahaan Listrik Negara (P.T.) (PLN) Indonesia Baa3 stable 1.57%
Pertamina (Persero) (P.T.) Indonesia Baa3 stable 1.27%
10.91%
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JACI corporate sub-index
The corporate sub index accounts for 57% of the overall index. Exhibits 28 and 29 below provide
further information on the breakdown of the corporate sub-index by sector, country and rating
category. Hong Kong has the highest weighting because Hutchison Whampoa is the single largest
non-sovereign issuer in the index.
Distribution of Corporate Market Capitalization Hong Kong and China are the Largest Corporate
by Sector Markets
Media & Products & Philippines Others
Telecom Retail 3.3% 3.9%
Thailand
4.8% 1.0% Hong Kong
Utilities 3.6%
26.9%
7.6% Indonesia
Industrials 3.8%
46.4%
Oil & Gas
Singapore
10.2%
7.4%
India
11.8%
China
Financials 21.8%
29.8% Korea
17.6%
Financials:
Financials account for 17% of the total JACI index. Exhibit 30 shows a breakdown of the financial
sub-component by geography and rating category, while Exhibit 31 lists the top five financial issuers.
As this shows, Korean banks make up by far the single part of the financial grouping. However, they
are not the single largest holder: that is Singapore’s DBS Bank (Aa1 negative) which holds 1.30% of
the total index.
EXHIBIT 30
Korea And India Account For Most Of The Banks In The Index
Aa A Baa Ba B
6%
5%
4%
3%
2%
1%
0%
Korea India Singapore Hong Kong Thailand Malaysia China Others
CORPORATES
EXHIBIT 31
Banks Are Diversified In Terms Of Geography
Top Five Financials Issuers Country Rating Outlook Weighting
ICICI Bank Limited India Baa3 stable 1.32%
DBS Bank Ltd. Singapore Aa1 negative 1.30%
Woori Bank Korea A1 stable 1.20%
Bank of China (Hong Kong) Limited Hong Kong Aa3 stable 1.03%
Shinhan Bank Korea A1 stable 0.80%
5.64%
For our views on outlook for the banking sector in each of the countries in the top five, see our most
recent reports: Singapore (published 24 March, 2011), India (published 9 November, 2011), Korea
(published 27 August, 2012) and Hong Kong (published 12 April, 2012).
Industrials:
Industrials account for 26.5% of the total index. Exhibit 32 shows a breakdown of the industrial sub–
component by geography and rating category, while Exhibit 33 lists the top five industrial issuers.
Hutchison Whampoa and Noble, two of the region’s largest conglomerates, have a total 5.2% weighting.
EXHIBIT 32
Hong Kong And China Dominate The Industrial Segment
Aaa Aa A Baa Ba B Caa
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Hong Kong China Korea Indonesia India Others
EXHIBIT 33
Industrial Segment, Dominated By Hutchison Whampoa, Has A Negative Bias
Top Five Industrial Issuers Country Rating Outlook Weighting
Hutchison Whampoa Limited Hong Kong A3 negative 4.48%
Vedanta Resources Plc India Ba1 negative 0.86%
POSCO Korea A3 Under review for downgrade 0.77%
CITIC Pacific Limited Hong Kong* Ba1 negative 0.70%
Noble Group Ltd Hong Kong Baa3 negative 0.69%
7.51%
*As defined by J.P. Morgan
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For a more detailed analysis of CITIC Pacific, Hutchison Whampoa Ltd, Vedanta Resources Plc,
POSCO and Noble please refer to our Credit Opinions published on Moodys.com.
Oil & Gas:

Oil and gas issuers account for 5.8% of the total index. However this is slightly misleading because
Petronas, which accounts for 1.85% of the total index, and Pertamina (1.27%) are both in the quasi-
sovereign sub-index.
EXHIBIT 34
Distribution of Oil & Gas Ratings by Country
Aa A Baa Ba B
3%
2%
1%
0%
China India Thailand Korea Hong Kong Indonesia
EXHIBIT 35
China Accounts For The Largest Proportion Of Oil & Gas Issuers (Non Sovereign Linked)*
Top Five Oil & Gas Issuers Country Rating Outlook Weighting
China National Offshore Oil Corporation China Aa3 Stable 1.39%
Reliance Holding USA, Inc. India Baa2 Stable 0.97%
China National Petroleum Corporation China Aa3 Positive 0.96%
PTT Exploration & Production Public Co. Ltd. Thailand Baa1 Negative 0.55%
GS Caltex Corporation Korea Baa2 Stable 0.41%
4.28%
*As defined by J.P. Morgan
We have a positive outlook on Asia-Pacific’s exploration and production industry, although we believe
their increasing pace of acquisitions poses risks. For our most recent report on the sector’s outlook,
please see “Upstream Asset Acquisitions: Short-Term Pain, Long-Term Gain,” published 27 October,
2011.
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Utilities:
Utilities account for 4.35% of the total index and this sector is dominated by the Korean generation
companies which are predominantly rated A1.
EXHIBIT 36
Utilities Ratings Dominated by Korean Gencos
A Baa Ba B
3%
2%
1%
0%
Korea China Indonesia Hong Kong India Malaysia
EXHIBIT 37
Korea Dominates The Utility Sector
Top Five Utilities Issuers Country Rating Outlook Weighting
Korea Hydro and Nuclear Power Company Limited Korea A1 stable 0.63%
Korea Gas Corporation Korea A1 stable 0.59%
Korea Electric Power Corporation Korea A1 stable 0.46%
China Resources Power Holdings Co., Ltd China Baa2 stable 0.37%
CLP Holdings Limited Hong Kong A2 stable 0.26%
2.31%
Our outlook for the Asia ex-Japan power utilities sector is stable, reflecting our view that fundamental
business conditions will neither erode nor improve significantly in the next 12-18 months. For our
most recent report on the sector’s outlook, please refer to “Asian Power Utilities (ex Japan): Increasing
Pressures, But Still Manageable” published 7 February, 2012.
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Media & Telecommunications:

Media and telecommunications account for 2.76% of the total index and, as Exhibit 38 shows, the sub
index is clearly dominated by Singapore Telecommunications6, or SingTel. Given its 54.4% ownership
by Temasek, we treat SingTel as a GRI and incorporate sovereign uplift into its Aa3 rating.
EXHIBIT 38
SingTel Dominates The Media & Telecommunications Sub Index
Aa A Baa Ba B
0.8%
0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
Singapore Korea Malaysia Hong Kong Indonesia Philippines China
EXHIBIT 39
Media And Telecommunications Sector Is Highly Diversified
Top Five Media & Telecommunications Issuers Country Rating Outlook Weighting
Singapore Telecommunications Limited (SingTel) Singapore Aa3 stable 0.63%
KT Corporation Korea A3 negative 0.42%
Hong Kong Telecommunications (HKT) Limited Hong Kong Baa2 stable 0.31%
Telekom Malaysia Berhad Malaysia A3 stable 0.26%
Indosat Tbk. (P.T.) Indonesia Ba1 stable 0.21%
1.83%
We have a stable outlook for Asia’s telecommunications sector. Our outlook reflects a balance of
opposing factors: the rise of smartphones and surging data usage; a push for more efficient capex and
operating expenditure; and increased investment in non-core businesses, although this is more relevant
to investment-grade issuers. For our most recent report on the sector’s outlook, please refer to “Asia-
Pacific Telecoms: Stable Amid Imminent 3G, 4G Investments” published 19 September, 2011.
Share Your Ideas

Tell us what you want to read about, or how we can make our research and services more useful to
you. Please send your ideas on this or other Moody’s publications to ideas@moodys.com.
6
See ‘Singapore Telecommunications: Answers to Frequent Credit Questions’ published 24 August 2012.
CORPORATES
Report Number: 144137
Authors Financial Writer

Laura Acres Tania Hall
Stephen Tang
Production Associate
Kerstin Thoma
© 2012 Moody’s Investors Service, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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SEPTEMBER 4, 2012 CORPORATES

SPECIAL COMMENT JACI: A Rating Perspective

The JACI: three main takeaways

Takeaway one: the index remains highly concentrated in 10 issuers

Takeaway two: the index is predominantly driven by sovereigns and quasi-sovereigns

Note: GRI stands for government-related issuer.

Takeaway three: stability predominates as the index becomes increasingly investment-

The JACI: the rating profile

JACI: spreads versus ratings

The JACI: breakdown by country

Bonds Bank Deposits Bonds Deposits Foreign Currency Local Currency

Source: Moody’s Investors Service

Source: Moody’s Investors Service

Hutchison Whampoa Limited Industrials A3 negative 4.48%

Indonesia Government Sovereign Baa3 stable 8.29%

The JACI: breakdown by investment-grade and non investment grade

JACI investment-grade sub-index

JACI non investment-grade sub-index

The JACI: breakdown by sector

JACI sovereign sub-index

JACI quasi sovereign sub-index

JACI corporate sub-index

*As defined by J.P. Morgan

Oil & Gas:

*As defined by J.P. Morgan

Media & Telecommunications:

Share Your Ideas

Report Number: 144137

Authors Financial Writer

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Moody's JACI

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