Fitch sees stable credit risk for iTraxx Asia ex-Japan Series 5

The iTraxx Asia ex-Japan Series 5 index comprises 50 of the most liquid CDS in the region. The new Series 5, which was effective from March 20, 2006, has a five-year maturity until June 20, 2011 and has the same rating as Series 4 at BBB/BBB-.

Six of the reference entities in Series 4 were removed and substituted with six new names. Entities that were dropped were Jardine Strategic Holdings, Korea Deposit Insurance Corp, SP Power Assets, Tata Power, Temasek Holding and Wan Hai Lines. Those included were China Development Bank, Noble Group, Panva Gas, SK Telecom, United Microelectronics Corp and Vedanta Resources.

Fitch, which also provides credit assessment for individual tranches of the index, said the overall credit risk is broadly similar to that of the Series 4 index, although it downgraded the credit risk of the 3%-6% tranche to CCC+/CCC in Series 5, compared to B/B- in Series 4. The weighted average rating points of the overall index deteriorated slightly to 4.52 for Series 5, compared with 4.18 for Series 4.

Fitch said the rating migration of individual constituents and substitutions affected by the rollover contributed to changes in rating of individual tranches. The number of reference entities rated below investment-grade increased to 10 in Series 5 from seven in Series 4. However, the number of reference entities rated A or above increased to 14 from 11. The top three industry concentrations in the Series 5 index are sovereign, including quasi-sovereign (26%), banking & finance (16%) and telecommunications (12%).
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