Moody's Investors Service, a global rating agency, said 37 high-yield non-financial corporate, under its rating in South and Southeast Asia, with US Dollar debt are protected against a substantial rise in leverage and contraction in earnings before interest, tax, depreciation, and amortization (EBITDA), should their local currencies depreciate to up to 20% against the greenback.
Moody's Vice President and Senior Credit officer, Annalisa Di Chiara, said in a press statement that the natural hedges limit the risk of unfavourable currency movements against the US Dollar for 19 companies. Di Chiara was commenting following the release of the Moody's report titled "High-Yield Corporates -- South and Southeast Asia: Most Rated Corporated Can Manage Risks Associated with US Dollar-Debt Exposure."
"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 mitigants to the US Dollar debt of cost exposures," she said, as reported.
Di Chiara said five Indonesian companies continues to use long-term financial hedges, which provide some protection at current exchange rates, while five companies have less than 10% of their total debt denominated in US Dollars, where it was not necessary for additional mitigates.
The agency's report is their fourth annual survey of foreign currency risks for corporates within the region.The findings of its survey were consistent with its previous survey, where four other same companies were identified as being vulnerable to foreign currency exchange risks -- similarly to Moody's initial survey in 2014.
The four companies exposed to risks due to significant currency mismatches were Indonesia's MNC Investama Tbk (P.T.) (BHIT, Caa2 negative), Gajah Tunggal Tbk (P.T.) (GJTL, Caa1 negative), and Banglalink Digital Communications Limited (Ba3 stable). These companies have over 70% of their debt in US dollars and meaningful US dollar-denominated costs but generate cash flows in their local currencies.
India's Reliance Communications Limited (RCOM, B2 negative) debt of 45% to 50% is denominated in US Dollars but lacks significant mitigants in place either. The rating agency, however, notes that although portfolio's total debt has grown, its US Dollar debt has declined to US$40.1 billion at the end of 2016 from US$43.2 billion from the same corresponding period the previous year.
