Asean companies face more headwinds – S&P

Standard & Poor’s believes companies in Southeast Asia including the Philippines are now facing more headwinds amid sluggish consumption growth and consumer sentiment as well as intense competition.

In its latest report on top companies in the Association of Southeast Asian Nations ( Asean), S& P expects debt of top companies to reach $ 300 billion by the end of 2015 from $165 billion as of end March this year, assuming no further exchange rate depreciation.

“We also see further deterioration in credit quality taking place through 2016. Spending and dividends remain elevated, and we expect cash inflows will remain insufficient to cover cash outflows,” S&P said.

It added currency depreciation could be the catalyst for a more severe distress.

“While it may not be sufficiently material yet in itself to cause widespread issues in the region, it is happening in a much tougher context than 12 months ago and could snowball rapidly if a sudden weakening in market confidence or a squeeze in liquidity accompanies it,” S&P said.

It explained major credit support to rising debt so far has been an adequate liquidity and low funding costs that mitigate some of the effects of debt-led investment.

According to S&P, debt maturing within 12 months represents only about 20 percent on average of total debt for the 100 companies and interest coverage ratios remain sound.

The debt watcher expect the median credit ratios of the largest listed companies to further deteriorate in Indonesia, the Philippines, and Singapore if companies maintain the same level of capital spending and dividends.

S&P believes the growth in foreign currency debt is an in- creasingly negative attribute of credit quality in the region.

“We estimate that it grew two to three times more rapidly than local currency debt for Malaysian, Philippine, and Indonesian companies operating domestically and included in our sample over the 20102014 period,” it added.

S&P expects large companies in Southeast Asia would keep spending elevated this year and next year despite reduced growth prospects and eroding consumer sentiment.

Aggregate capital spending of about $ 11 billion was recorded for the quarter ending March this year.