Moody's Investors Service says in a recently released report 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% against the US dollar.
Natural hedges limit the risk of unfavorable currency movements against the US dollar for 29 companies, accounting for 58% of portfolio's outstanding USD debt, Moody’s pointed out.
Ten companies have sufficient protections or limited US dollar debt, while 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, the rating agency added.
Three of the 47 companies have less than 10% of US dollar debt exposure, such that additional mitigants are unnecessary, the firm noted.
Significant currency mismatches occur for Indonesia’s MNC Investama Tbk (B3 negative) and Gajah Tunggal Tbk (P.T.) (B2 negative), and Bangladesh’s Banglalink Digital Communications Limited (Ba3 stable) because more than 65% of their debt is in US dollars but they generate all, or a majority of, their cash flow in local currency, Moody’s warned.
Despite the use of financial hedges to protect most of their principal, Indonesian property companies Lippo Karawaci Tbk (P.T.) (B3 stable) and PT Alam Sutera Realty Tbk (B2 negative) are also more at risk of leverage rising should the IDR depreciate above IDR15,000, the firm added.
The 47 rated companies had around $112.1 billion of debt outstanding at the end of 2018, $56.5 billion of which was denominated in US dollars, according to Moody’s.