Southeast Asia Currency Slide Inflates $20 Billion Debt BillBy
Borrowers must repay 8 percent more on dollar bonds next year
Currencies at weakest in decade revives ‘original sin’ concern
Here we go again. Southeast Asia is bracing for rising debt bills as the region’s currencies slide.
The amount that the area’s companies, banks and governments must repay on dollar-denominated bonds will rise 8 percent next year to $19.7 billion, just as a slide in Asia’s currencies to the weakest this decade threatens to push up servicing costs on that debt.
The development is a reminder of the dangers of overseas borrowing that economists Barry Eichengreen and Ricardo Hausmann called "original sin" following the 1997 Asian Financial Crisis. Southeast Asia is more insulated now after expanding its local debt markets since then, and the currency swoon hasn’t been as bad as in other emerging markets. But that’s little consolation for borrowers that have most of their revenue at home and must use suddenly weaker currencies to pay off overseas obligations.
“Those that will be affected are domestically-based companies with minimal exports and companies with a high percentage of foreign currency debt," said Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. in Singapore.
Many companies are vulnerable as the rupiah, peso and ringgit all weaken, he said.
Here is a list of the ten non-financial firms in Southeast Asia with the most dollar bonds due in the next 12 months, according to data compiled by Bloomberg. Companies with income in the greenback and currency hedges would be cushioned:
- Singapore Telecommunications Ltd.: Excluding regional associates, the group’s companies have foreign-currency borrowings "hedged into the functional currency of the respective borrowing entities,” said Lim Cheng Cheng, chief financial officer at the Singapore-based phone company, which derives over three quarters of its revenue overseas, including in Asia, Australia and Africa. “We have in place a euro medium term note bond program which enables us to tap various bond markets based on our funding plans. As an example, in October this year, we issued a $500 million bond at a coupon of 2.375 percent, and this has been hedged back to Singapore dollars. Hence, from a debt management perspective, the impact of a rising U.S. dollar is not significant.”
- PT Bumi Resources: “Our bonds are fully in U.S. dollars and so is our accounting currency," said Dileep Srivastava, director at the Indonesian coal mining firm. “So the rupiah exchange variations have no impact on us. We also have a natural hedge -- our revenue is in dollars and 90 percent of our costs are in dollars."
- Olam International Ltd.: An external spokesperson for the Singapore-based food traders, one of the world’s biggest, declined to comment.
- BOC Aviation Ltd.: “We have a massive warchest both to support our capex and to refinance our existing commitments," said Timothy Ross, head of investor relations and corporate communications at the aircraft leasing company based in Singapore. “There is no issue with regards to refinancing any of the debt as and when it comes due. All of our assets are in U.S. dollars. Our revenues are all in U.S. dollars and 92 percent of our costs are in U.S. dollars. We’re a pure U.S. dollar play which I guess if anything should make us more attractive given the strength of the U.S. dollar.”
- Alliance Global Group Inc.: No one was available to comment when the Quezon City, Philippines-based company was contacted by phone. There was no reply to an e-mail to the investor relations department of the conglomerate, which has interests ranging from food and beverages to gaming.
- Perusahaan Listrik Negara: No one was available to comment when the Indonesian government-owned electricity distributor was called, and there was no reply to an e-mail.
- Berau Coal Energy Tbk: No one was available to comment when the Indonesian coal mining group was called. Jakarta-based corporate secretary Gamal Wanengpati couldn’t be reached for comment.
- SM Investments Corp.: “Our dollar debt is fully hedged. The drop in local currencies does not affect the debt service of our foreign currency debts. There will be no increase in the debt service cost because our foreign currency debts are fully hedged including the interest cost,” said Jose Sio, chief financial officer of the Philippines conglomerate with interests in property, retail and banking. “Current and future refinancing activities are focused on raising in local peso currency. Example of this is our 20 billion peso corporate bonds to be issued during the first week of December 2016.”
- Travellers International Hotel Group Inc.: “We’ve ruled out hedging because for us it’s slightly too late,” said Bernard Than, chief financial officer at the Philippines-based owner and operator of Resorts World Manila. “We’ve always marked to market the forex loss over the years.” He added that the company has enough credit lines to pay off the upcoming bond and plans to focus on local funding in the future. “We rather put our faith in things we can control rather than relying on a forex loan or forex bond where we are at the mercy of the exchange rates,” said Than. “We rather not put our faith in that any more and switch everything to local lending.”
- Carmen Copper Corp.: This Philippines-based firm has operating rights over the Toledo copper mine. Parent company Atlas Consolidated Mining & Development Corp. this month approved a plan to refinance $300 million of bonds at its wholly-owned unit Carmen Copper. No one was available to comment when Atlas Consolidated Mining was called. There was no immediate reply to an e-mail to the investor relations department of Atlas Consolidated Mining. Two calls to Fernando Rimando, Carmen Copper’s chief financial officer, weren’t answered.
— With assistance by Fitri Wulandari