US dollar debts rise as S-E Asian currencies fall

SINGAPORE • Here we go again. South-east Asia is bracing itself 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 per cent next year to US$19.7 billion (S$28.11 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.

South-east Asia is more insulated now after expanding its local debt markets since then, and the currency swoon has not been as bad as in other emerging markets.

But that is 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 Mr Raymond Chia, head of credit research for Asia ex-Japan at Schroder Investment Management in Singapore.

"In the past, the rupiah was the most vulnerable but now we are seeing other currencies such as the peso and ringgit weakening, so a broader group of companies are vulnerable."

Companies with income in the greenback and currency hedges would be cushioned from the fallout, while those without such buffers would effectively see their debt loads worsen.

Mr Timothy Ross, head of investor relations and corporate communications at Singapore-based aircraft leasing company BOC Aviation, said the firm has "a massive war chest both to support our capex and to refinance our existing commitments".

"There is no issue with regard to refinancing any of the debt as and when it comes due. All of our assets are in US dollars. Our revenues are all in US dollars and 92 per cent of our costs are in US dollars."

Mr Bernard Than, chief financial officer of the Philippines-based Travellers International Hotel Group, said the company has ruled out hedging because "it's slightly too late".

The company is the owner and operator of Resorts World Manila.

"We've always marked to market the forex loss over the years. For the foreseeable future, we'll most likely just pay it off using peso debt."

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 (would) 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," he said.

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A version of this article appeared in the print edition of The Straits Times on November 30, 2016, with the headline 'US dollar debts rise as S-E Asian currencies fall'. Print Edition | Subscribe