Currency depreciation will affect firms with dollar borrowings

The recent currency depreciation will see firms with dollar borrowings taking a hit on their profit and loss accounts.

According to stock analysts, the currency depreciation will negatively affect the rupee value of the companies' loans. "As long as the loans aren't hedged, they need to be settled in rupees which are depreciated," a stock analyst said.

For instance, Grain Elevators PLC had US$ 28.3 million foreign currency debt as of 31 December 2021 that was worth Rs. 5.75 billion at 31 Dec 2021, using exchange rate of Rs. 203/US$.

"Assuming the same level of US dollar debt, but at a new exchange rate of Rs. 270 would give Sri Lankan Rupee value of debt as Rs. 7.65 billion. Difference of -Rs1.9 billion would be a hit on the company's financial," the analyst said.

"As of the year-end, the group has a significant amount of foreign currency outstanding trade debts due to foreign suppliers, on which any adverse fluctuations in the exchange rates would have a material impact on the group’s profits," the recent company results said.

Hotels are a different story because despite borrowing in dollars, they earn also in dollars which nets off. The currency depreciation with immensely benefit the software companies and it has indirect benefits for the plantation companies. The plantation options are denominated in rupees, but the buyers will pay in foreign exchange. Thus, the depreciation will help these companies.