Two of Southeast Asia’s richest businessmen are experiencing the weight of dollar strength after loading their business empires up with cheap US currency debt.
Anthoni Salim, who controls the First Pacific Co. conglomerate, and T. Ananda Krishnan, a major shareholder of Malaysian mobile phone operator Maxis Bhd., are feeling the pinch as the rupiah and the ringgit slump to the lowest since the 1998 Asian financial crisis. The duo’s companies have among the most foreign-currency debt in their respective countries, with dollar liabilities totaling at least $3.8 billion for Salim and some $2.3 billion for Krishnan, data compiled by Bloomberg show.
While the lessons of the 1998 meltdown have prompted both tycoons to take out currency hedges and seek to balance cash flows and liabilities, concern over their foreign debts is weighing on the two groups’ shares and bonds. Although Hong Kong-listed First Pacific stock is down 38% this year, its bonds are still trading above par. The pain may be about to get worse as traders price in a 62% chance the Federal Reserve will raise interest rates by December, with 32% saying a rise could come as early as this week.
“Without prudent foreign exchange risk management, a company would have increasing interest payments in local currency, a deteriorating credit profile and rising hedging costs,” said Mark Yu, a money manager at Atlanta-based Invesco Advisers Inc., without referring to any specific Asean borrower. Pressure won’t let up in the near term, considering “the Fed is going to hike rates, global emerging market economic growth is slowing” and a more flexible yuan fixing will increase regional currency volatility, he said.
Since China devalued the yuan in August, Malaysia’s ringgit has weakened 7.6%, making it the worst-performing currency in Asia ahead of Indonesia’s rupiah, which is down 6.1%. The peso has weakened 4.3% this year, 2% of that since the depreciation.
Borrowings
Hong Kong-headquartered First Pacific, with interests ranging from noodle maker PT Indofood Sukses Makmur to Philippine Long Distance Telephone Co., had $1.8 billion of dollar-denominated borrowings as of June 30, its interim report shows. First Pacific’s main source of income is dividends from subsidiary companies in Indonesia and the Philippines. Salim, 66, is chairman and ultimately controls 45.1%.
First Pacific’s operating companies “have been proactively arranging local currency loan funding,” Sara Cheung, an investor relations official in Hong Kong at First Pacific, said. Its Philippines phone company, PLDT, had revenues that were either denominated in, or linked to, dollars of more than $700 million last year. Indofood also derived $400 million in export sales in 2014, she said.
Companies that have strong export earnings may be less affected.
“Our view has been for the past three years that we’re going to experience a strong dollar, so what I’ve been picking are exporters, companies that are solid exporters banking on the fact global growth is not going to be fantastic but it’s going to be stable,” one exporter said, declining to talk about the two tycoons specifically.
