PHL firms face least risks from stronger dollar

By November 6, 2018Property News

By Melissa Luz T. Lopez, Senior Reporter
PHILIPPINE corporates have the least to worry about at a time of stronger dollar, S&P Global Ratings said as it pointed out that local firms have the lowest foreign debt compared to Southeast Asian peers.
In a report, the debt watcher said rated entities in various countries are exposed to varying degrees of volatility at a time of rising interest rates in the United States and sustained dollar strength. Still, the depreciation of emerging market currencies are considered “less severe” compared to previous crisis periods.
Borrowers from Turkey and Argentina are seeing the biggest pressure, but most companies from other emerging market economies “will be able to adjust” to developments in the global market, S&P said.
“The large majority of rated entities in other Southeast Asian countries either have limited foreign currency debt, conservative balance sheets, or are naturally hedged, especially in the commodities sector,” the credit rater said in the report.
While the peso, the Malaysian ringgit, Indonesian rupiah and Indian rupee stand as the most affected Asian currencies, it’s not all bad as far as the debt watcher is concerned.
“A significant portion of pre-existing current account deficits in India, Indonesia and the Philippines are financing large-scale infrastructure buildouts — generally seen as positive for future productivity and trade balances,” S&P said.
The peso is down by 6.13% year-to-date according to Reuters, but has been recovering over the past few weeks amid improved investor sentiment.
The current account, which measures fund flows drawn from goods and services trading, posted a $3.1 billion deficit as of end-June. Being in deficit is said to weigh down investor appetite towards the Philippines, and thus adds to external pressures towards emerging market currencies like the peso.
Zooming in on Southeast Asia, S&P said currency depreciation is likely to have a “more modest impact” now compared to previous episodes of financial stress. Instead, the impact will be felt for certain sectors.
“The main sectors affected are: transportation services, especially airlines, given that a high share of fuel aircraft leasing costs are denominated in US dollars; building materials (energy costs); and capital goods (input costs),” the debt watcher said, noting that outstanding debt for these industries stand for roughly 15% of outstanding loans for companies listed in 2018.
“Potential exposure appears highest in Indonesia, at about 25%, and lowest in the Philippines, where large diversified groups issue the bulk of debt,” it added.
S&P sees the US dollar to maintain its strength as the Federal Reserve is poised to raise rates anew. Still, some markets are seen insulated from such shocks as investors appear to be “discriminating,” as they judge countries based on economic fundamentals and policy frameworks rather than avoid these markets altogether.
In previous reports, the credit rater said the Philippines holds ample buffers to cushion the blow of rising interest rates, slower global growth and weaker currencies, and is unlikely to see contagion risks from Turkey and Argentina’s problems.