By Patturaja Murugaboopathy and Gaurav Dogra
June 8 (Reuters) - Asian companies are at a higher risk of
default in the coming quarters than last year, a Reuters
analysis of their credit ratios showed, as the coronavirus
pandemic has squeezed revenue and made it harder to refinance
debt.
One measure of how easily a company can pay interest on
outstanding debt - operating profit to interest ratio - fell to
the lowest in 11 years at the end of March. The sample took into
account companies worth at least $500 million with available
data on Refinitiv.
Net debt to EBITDA (earnings before interest, taxes,
depreciation, and amortisation), which shows how many years it
would take a company to pay back debt, was at its highest since
June 2014.
"We expected the pick-up in default rates to be mostly
amongst smaller companies who already had a stretched liquidity
profile and less access to alternative funding channels," said
Alaa Bushehri, head of emerging market debt at BNP Paribas Asset
Management.
"This is being exacerbated now by COVID-19 lockdowns,
slow-down in activity and a lower commodity environment."
Energy, real estate and utilities firms topped default risk
charts, Reuters found.
Airlines were the worst affected with flights grounded and
people unwilling to travel. Virgin Australia, for example,
entered into voluntary administration in April.
Late last month, Moody's forecast the default rate on
high-yield debt issued by non-financial Asia-Pacific firms would
climb to 6.4% by the end of this year, from 2.3% in March.
Some companies will try to restructure their debt to avoid
default, especially offshore debt.
That could be an uphill task as a sharp depreciation in
Asian currencies this year has increased repayment costs of
companies that have borrowed in dollars and have no natural or
financial hedges in place, said Buddhika Piyasena, head of
Asia-Pacific Corporate Ratings at Fitch Ratings.
The yield on a bond CN166986559= issued by China's Tianqi
Lithium Corp 002466.SZ , for instance, climbed to about 60%
last month on perceived higher risk of the company missing its
interest payments this year. It is currently trading at
40%. About $100 billion worth of dollar bonds are maturing
between June 2020 and December 2021, according to Refinitiv
data.
"High-yield companies with weak credit quality will likely
have increasing difficulty refinancing offshore bonds, given
coronavirus induced market volatility and investors' heightened
risk aversion," Moody's analyst Sean Hwang said in a note.
"We expect investors to be increasingly selective in
managing their high-yield exposure, which will weaken low-rated
companies' access to funding."
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Asian companies' net debt to EBITDA ratio https://tmsnrt.rs/2Bmv49C
Asian companies' EBIT to interest expense ratio https://tmsnrt.rs/2XQ95Q0
Asian companies' credit combined global rank https://tmsnrt.rs/3f4bhuj
Asia companies' country-wise credit combined global rank https://tmsnrt.rs/3dHCSAV
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