Peso depreciation bane to big PH firms with substantial dollar debts

The Philippines’ biggest companies face another year of significant repayments of US dollar debt after record amounts came due in 2018, even as a slumping peso makes it costlier to pay back.

A total of $4.9 billion in dollar bonds and loans have matured or will still come due in 2018, more than four times the amount last year and the highest since at least 2003, according to data compiled by Bloomberg. Obligations that groups such as San Miguel Corp., SM Investments Corp. and Ayala Corp. need to refinance or repay in the next five years will remain sizable.

The Philippine credit market is seeing reminders of the late 1990s Asian financial crisis, as big companies including banks, brewers and builders must pay back dollar debt at a time when the home currency is depreciating.

The peso, among Asia’s worst performers this year, will likely weaken by 2.4 percent in 2019 to 54.90 pesos per dollar and to 55 the year after, according to a Bloomberg survey. It closed at 53.590 a dollar on Oct. 30.

As currency volatility lingers, the Philippine central bank is closely monitoring corporate credit for risks it could pose to the financial system.

Huge exposure to foreign-currency debt, at a time when the peso has touched 12-year lows, could erode corporate profitability and add to banks’ overall credit risks, the central bank said in an emailed reply to questions. This is especially true for companies that haven’t sufficiently hedged their dollar obligations, it said.

Probably only 20 percent to 30 percent of private dollar debt is hedged, excluding any natural cover from dollar earnings, according to Eduardo Francisco, president of BDO Capital & Investment Corp., which is engaged in securities underwriting, loan syndication and the financial advisory business. No official numbers are reported to the central bank.

“Hedging levels have likely remained the same over the years because hedge cover has always been expensive,” Francisco said. “The market is not that deep.”

The most at risk from the peso slump are construction and transportation companies, whose revenues are in the local currency but they make large investments in dollars, according to S&P Global Ratings analyst Bertrand Jabouley.

San Miguel and its energy units have to pay off the most dollar debt in the next five years at $3.3 billion, based on publicly available data. The beer maker that had expanded to infrastructure enters into currency swaps to manage its long-term borrowings, according to regulatory filings.