(From Nikkei Asian Review)

Expectations for the first U.S. interest rate hike since June 2006 are mounting ahead of the Federal Reserve’s two-day meeting on Dec. 15-16. Under the prolonged period of easy monetary policy, many Asian companies have taken advantage and accumulated large amounts of U.S. dollar-denominated debt at reasonable rates. A major monetary policy shift by the Fed could place some of those companies under the spotlight.


“Higher debt loads and lower debt-servicing capacity increase the corporate sector’s sensitivity to macroeconomic and financial shocks.” This is how the International Monetary Fund summarized the situation in a report titled “Spillovers from dollar appreciation” in July. The Nikkei Asian Review attempted to measure the potential risks of this major monetary policy shift on leading Asian businesses by surveying the U.S. dollar debt exposure, cash generating capability and the stock market valuation of the “Asia 300” companies — 331 listed blue chips in Asia outside Japan selected by the Nikkei Asian Review.

According to the QUICK-FactSet database, there were 74 companies with more than $500 million in U.S. dollar-denominated bonds outstanding at the end of October. That number narrows to 55 by focusing on nonfinancials, and 17 of those recorded negative free cash flow over the past three financial years. Though all had double-digit equity-to-asset ratios, 13 saw their market capitalizations drop this year to November, indicating a certain level of investor wariness in anticipation of a change to the policy framework by the Fed.

Some Indian companies were hard-hit in terms of stock prices. Hindalco Industries, a flagship company of the Aditya Birla Group that produces aluminum, had $3.6 billion in U.S. dollar bonds outstanding, with an average free cash flow in the last three years exceeding negative $1.2 billion; it lost over half of its market value. The 2007 acquisition of U.S.-based Novelis for $6 billion pushed up its debt in greenbacks, but the crash in commodities prices has been impacting its business in recent years. Read more

Leave a comment