Asian firms may struggle to refinance dollar debt, ratio suggests

Asian companies are likely to find it harder to refinance dollar-denominated debt, the decline in a key metric suggests, with the currency at a two-decade high and a recent surge in inflation forcing central banks to raise interest rates.

The interest coverage ratio of these companies – a measure of how easily they can pay interest on outstanding debt – slipped to 5.1 at the end of March, the lowest in a year, dragged down partly by firms in China, South Korea, Indonesia and Vietnam.

Reuters analysed 1,700 Asian companies (excluding financial firms) for which comparable data was available from Refinitiv. They had a combined market capitalisation of more than $1 billion.

Asian companies in total raised $338 billion in dollar and euro debt last year.

But 2021 also saw the bottom in interest rates. By the end of March 2022, Asian companies’ debt had surged to $6.7 trillion, up by a quarter from two years earlier.

Now, the ascending greenback and rising central bank rates are making interest payments dearer for smaller Asian firms that do most business locally and do not have much exports to boost the value of their earnings.

Also, business conditions have deteriorated as raw material prices have jumped and companies have struggled to pass the extra cost on to customers, squeezing margins.

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