Most high-yield rated corporates in South and Southeast Asia can manage the risks associated with their foreign currency debt exposure - Photo: ADB.

JAKARTA (TheInsiderStories) – Most high-yield rated corporates in South and Southeast Asia can manage the risks associated with their foreign currency debt exposure, says Moody’s Investors Service in its sixth annual report on the topic, Friday (06/28).

Moody’s says that all but five of the 47 rated South and Southeast Asian high-yield companies have protections in place against a significant rise in leverage, or a contraction in EBITDA, should their local currencies depreciate up to 20 percent against the US dollar.

“Since our first study published in May 2014, our approach has annually identified those rated companies most vulnerable to unfavorable foreign currency movements,” says Annalisa Di Chiara, a Moody’s Vice President, and Senior Credit Officer.

Di Chiara revealed the Moody’s surveys have each year identified four to six companies – accounting for 10 percent of the rated portfolio covered in their analysis – most exposed, and their latest study shows these same companies are exposed today.

Moody’s reports point out that natural hedges limit the risk of unfavorable currency movements against the US dollar for 29 companies, accounting for 58 percent of the portfolio’s outstanding US dollar debt, Di Chiara adds.

Ten companies have sufficient protections or limited US dollar debt, and a further seven generate a meaningful portion of their revenue in US dollars, have financial hedges in place, some US dollar cash, or a combination of these factors.

Three of the 47 companies have less than 10 percent of US dollar debt exposure, such that additional mitigants are unnecessary.

Significant currency mismatches occur for Indonesia’s MNC Investama Tbk (B3 negative) and PT Gajah Tunggal Tbk (B2 negative), and Bangladesh’s Banglalink Digital Communications Limited (Ba3 stable) because more than 65 percent of their debt is in US dollars but they generate all, or a majority of, their cash flow in local currency.

And despite the use of financial hedges to protect most of their principal, Indonesian property companies PT Lippo Karawaci Tbk (B3 stable) and PT Alam Sutera Realty Tbk (B2 negative) are also more at risk of leverage rising should the IDR depreciate above Rp15,000.

The 47 rated companies had around US$112.1 billion of debt outstanding at the end of 2018, $56.5 billion of which was denominated in US dollars.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com