PHILIPPINE companies and their peers in the Association of Southeast Asian Nations (ASEAN) are largely expected to weather rising interest rates, S&P Global Ratings said in a Sept. 17 report that cited bigger debts incurred by firms in the region.
In a report, the debt watcher said Southeast Asian companies remain armed with enough money supply to support growing funding requirements despite tighter credit conditions.
“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 its report.
This comes at a time of “slowing” revenue and earnings growth of firms in the Philippines, Indonesia, Malaysia, Singapore, Vietnam and Thailand.
Earnings before interest, tax, depreciation and amortization have risen by about two percent so far this year, S&P said, noting that overall revenues grew seven percent and profit rose by five percent in 2017.
Growth momentum slowed particularly for firms engaged in commodities as well as consumer sectors amid “muted” consumer sentiment, higher input costs and increased competition.
Businesses across the region have also been spending “more than they generate,” leading to a taller pile of debt and financial charges.
Bigger foreign debts also drive up exchange rate exposure, although such concerns are relatively contained, S&P said.
The report noted that Philippine firms display “weaker” credit quality this year amid a slowing earnings momentum and rising capital spending, matching the regional trend.
Companies in the Philippines, Thailand and Vietnam are also seen most exposed to interest rate pressures, but any impact would be “moderate” overall.
“It is generally the case in the Philippines and Thailand because of debt-funded spending and acquisitions by domestic companies,” the credit rater said.
“We believe that rising rates will have a moderate effect overall and will not, in isolation, lead to a widespread interest-servicing crisis in the region. Any sensible interest-rate sensitivity and stress analysis would be company-specific because capital providers would be more choosy when lending capital.”
The central bank fired off its strongest policy adjustment in a decade last month — raising rates by 50 basis points in one blow — in the face of surging inflation.
That move lifted benchmark yields by a total of 100bps so far this year, and monetary authorities have already signalled “strong monetary action” when they meet on Thursday next week.
The latest policy tweaks have brought benchmark rates to a 3.5-4.5% range. Separately, the United States Federal Reserve has also raised rates by 50bp this year, following a cumulative 75bp increase in 2017. — Melissa Luz T. Lopez