US dollar debt manageable for South and Southeast Asian high-yield companies

Despite the ongoing volatility in the foreign exchange markets, dollar debt is manageable for most South and Southeast Asian high-yield companies, according to a leading rating agency. 

In a report for its clients, Moody's said that all but five of its 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.

The agency also pointed out that natural hedges limit the risk of unfavourable currency movements against the dollar for 29 companies, accounting for 58% of portfolio's outstanding debt. 

"Since our first region study on the subject was published in May 2014, our approach has annually identified those rated companies most vulnerable to unfavorable foreign currency movements," said Annalisa Di Chiara, Senior Credit Officer at Moody's.

"Our surveys have each year identified four to six companies - accounting for 10% of the rated portfolio covered in our analysis – most exposed, and our latest study shows these same companies are exposed today." 

Elsewhere in its report, Moody’s said ten companies have sufficient protections or limited dollar debt, and a further seven generate a meaningful portion of their revenue in dollars, have financial hedges in place, some dollar cash reserves, or a combination of these factors.

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

Significant currency mismatches occur for Indonesia's MNC Investama [Rated B3 with a negative outlook by Moody’s] and Gajah Tunggal [B2/negative], and Bangladesh's Banglalink Digital Communications Limited [Ba3/stable] because more than 65% of their debt is in dollars but they generate all, or a majority of, their cash flow in their respective local currencies.

And despite the use of financial hedges to protect most of their principal, Indonesian property companies Lippo Karawaci Tbk [B3/stable] and PT Alam Sutera Realty [B2/negative] are also more at risk of leverage rising should the IDR depreciate above IDR15,000.

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