Ayala, SM fully hedge currency risks

It wasn’t just governments and central banks that took away lessons from the Asian financial crisis of the late 1990s. Ayala Corp. and SM Investments Corp. of the Philippines learned to fully hedge the currency risks on their foreign debt when the dollar strengthens.

“Our view from the start of the year has been a stronger dollar, and we have managed our positions as such,” Ayala’s Chief Finance Officer Jose Teodoro Limcaoco, said in a July 14 interview in Manila. SM’s policy is to have “no currency risk in our books,” Corazon Guidote, the company’s head of investor relations, said July 13.

Weakening Southeast Asian currencies are sparking memories of the 1997-1998 crisis, when a sharp rise in the dollar inflated the cost of dollardenominated debt and led to corporate defaults. Hedging measures by Philippine companies such as Ayala and SM are seen helping shield them as the dollar gains and the Federal Reserve prepares to raise interest rates.

“For companies exposed to dollars on their books, it’s a really, really good time to be hedging,” said Alan Cayetano, head of foreign-exchange trading at Bank of the Philippine Islands in Manila. “The general outlook is a broadly strong dollar. We see that companies are very proactive in covering short-term obligations, both from a cash flow and a risk management perspective.”

The dollar has climbed against all major Southeast Asian currencies this year. The peso fell 0.1 percent as of 11:16 a.m. in Manila, heading for its lowest close since February. It has weakened 1.3 percent this year, compared with an 8 percent loss for the ringgit and a 7.5 percent drop in the rupiah.

It’s a different situation from 1997, when the