According to S&P, debt buildup typically leaves balance sheets more exposed to another market downturn and external headwinds such as rising funding costs, foreign-currency depreciation and a challenging trade environment.
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Philippine firms seen withstanding rising interest rates
(philstar.com) - September 19, 2018 - 1:29pm

MANILA, Philippines — Southeast Asian firms are expected to withstand soaring interest rates amid rising debt, thanks to their stable money supply, debt watcher S&P Global Ratings said.

Based on figures for the past 12 months, S&P said two thirds of listed companies in the region could cover short-term debt servicing with their cash balance and profits, but “cash balances seem to deplete more rapidly.”

“Most listed ASEAN companies can still cover short-term debt and interest payments with cash on hand and profits. We also believe liquidity will remain stable even if funding costs creep up,” S&P said in a September 17 report.

According to S&P, debt buildup typically leaves balance sheets more exposed to another market downturn and external headwinds such as rising funding costs, foreign-currency depreciation and a challenging trade environment.

Slowing revenue, growth

Revenue and earnings growth momentum are “slowing” in the region, the debt watcher also said, adding that more than half of the listed companies in Southeast Asia are still spending more than they generate, resulting in rising debt and financial charges.

“Momentum has stalled most notably in the commodities sectors, which benefitted from much-improved operating conditions in 2017 amid higher prices,” S&P said.

“Growth also remains subdued in most consumer sectors amid muted consumer sentiment, rising input costs, and structurally intense competitive pressures,” it added.

The credit rating agency noted that companies in the Philippines—like most firms in Southeast Asia—have “weaker” corporate credit quality this year compared with 2017 due to “slowing earnings momentum” and “rising capital spending.”

S&P also found that companies in Thailand, the Philippines and Vietnam are the “most exposed” to interest rate pressures, although the impact is likely “moderate effect overall.”

“Any sensible interest-rate sensitivity and stress analysis would be company-specific because capital providers would be more choosy when lending capital,” the credit rater said.

The Bangko Sentral ng Pilipinas has raised its policy rates by a cumulative 100 basis points from May to August in a bid to fight inflation. On Monday, the central bank vowed to undertake “strong monetary action” in the upcoming rate-setting meeting next week.

Emerging-market central banks have recently come under pressure amid a stronger US dollar and tightening monetary policy in advanced economies. — Ian Nicolas Cigaral

ASEAN ASSOCIATION OF SOUTHEAST ASIAN NATIONS INTEREST RATES S&P GLOBAL RATINGS
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