Moody’s: Most rated SE Asian high-yield firms can manage USD debt exposure

JAKARTA (TheInsiderStories) –  Moody’s Investors Service says that all but four of the 41 high-yield non-financial corporates it rates in South and Southeast Asia with US dollar debt have protections against a substantial rise in leverage or contraction in EBITDA should their local currencies depreciate up to 20 percent against the US dollar.

“Natural hedges limit the risk of unfavorable currency movements against the US dollar for 19 companies,” says Annalisa Di Chiara, a Moody’s Vice President and Senior Credit Officer.

“Another eight generate a portion of their revenues in US dollars or have cash on their balance sheet, financial hedges, or longer-dated maturities that provide some mitigation to US dollar debt or cost exposures,” Di Chiara said.

“Five Indonesian companies continue to use long-term financial hedges providing some degree of protection at current exchange rates, and five companies have less than 10% of their total debt denominated in US dollars where additional mitigants are unnecessary,” added Di Chiara.

Di Chiara was speaking on the release of Moody’s report entitled “High-Yield Corporates — South and Southeast Asia: Most Rated Corporates Can Manage Risks Associated with US Dollar-Debt Exposure”.

The report is Moody’s fourth annual survey of foreign currency risks associated with US dollar debt exposures for its rated South and Southeast Asian high-yield corporates.

Moody’s findings in this year’s survey remain consistent with its previous surveys, with the same four companies identified as being vulnerable to foreign currency exchange risks as in Moody’s initial survey in 2014.

These four companies are exposed due to their significant currency mismatches. Indonesia’s MNC Investama Tbk. (P.T.) (BHIT, Caa2 negative) and Gajah Tunggal Tbk (P.T.) (GJTL, Caa1 negative), and Bangladesh’s Banglalink Digital Communications Limited (Ba3 stable) which have over 70% of their debt in US dollars and meaningful US dollar-denominated costs, but generate cash flows in their local currencies.

In addition, 45%-50% of India’s Reliance Communications Limited’s (RCOM, B2 negative) debt is in US dollars, but the company does not have significant mitigants in place either.

Moreover, risks are exacerbated as significant US dollar-debt maturities draw closer, increasing refinancing risks for BHIT, GJTL and RCOM over the next 12 months.

Finally, Moody’s notes that although the portfolio’s total debt has increased, its US dollar debt has declined modestly to $40.1 billion at end-2016 from $43.2 billion at end-2015. The reduction in US dollar debt primarily reflects the net effect of aggregate debt repayments by existing issuers more than offsetting additional debt from new rated issuers. (*)