Moody's: Most high-yield corporates in South and Southeast Asia can withstand sustained US dollar appreciation

Moody's Investors Service says that all but six of the 49 high-yield non-financial corporates it rates in South and Southeast Asia with US dollar debt have mitigates in place against the risks from their local currencies depreciating by up to 20%.

"Twenty-five of the high-yield corporates we rate in the region have nearly all of their revenue and operating expenses denominated in US dollars, which provides them with a natural hedge against a sustained US dollar appreciation," says Annalisa Di Chiara, a Moody's Vice President and Senior Analyst.

"Another eight companies have financial hedges in place to reduce the negative impact of local currency depreciation against the US dollar, three have a mix of natural and financial hedges, and seven have such low exposure to US dollar debt that mitigants aren't necessary," adds Di Chiara.

Moody's report notes that four of the six exposed companies -- Indonesian corporates Media Nusantara Citra (Ba3 stable), MNC Sky Vision (B1 stable) and MNC Investama Tbk (B1 stable), and Bangladesh's Banglalink Digital Communications (B1 stable) -- have some cushion to protect credit quality in the form of low leverage or an ability to extract dividends from subsidiaries.

But two of the six companies are more vulnerable to a sustained currency depreciation, says Moody's. Gajah Tunggal Tbk's (B2 stable) lack of mitigants against currency swings contributed to an increase in leverage during 2014. And Indian telecom operator Reliance Communications (Ba3 stable), with about 66% of its total debt in US dollars, does not have significant mitigants in place either.

Over the last 12 months, the Indonesian rupiah and Indian rupee have depreciated roughly 12% and 13% against the US dollar. The vast majority of the high-yield corporates in the region are subject to one of these currencies.

Total US dollar debt for the 49 rated companies totalled $56.5 billion at year-end 2014, representing about 53% of their $106.5 billion in total outstanding debt.

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