Indonesian and Malaysian companies with foreign currency debts may be forced to raise equity funds at steep discounts and restructure debt as the rupiah and ringgit currencies have weakened to 17-year lows, bankers and company executives say.
As businesses expanded overseas and took advantage of cheap debt, foreign currency borrowings of 100 large Southeast Asian firms reviewed by Standard & Poor's ballooned to around a third of the total debt last year from just 16 percent in 2011.
For nearly 40 percent of those companies, foreign currency debts now make up more than half of the total debt, double the number four years ago.
"Rights issues are the only way out in a market correction like this. There are going to be a lot of these," said a senior capital markets banker at a Western bank in Singapore.
Refinancing requirements are most prominent in Indonesia, which saw the fastest rise in corporate foreign debt in the region over the past five years. Many Indonesian firms generate the majority of their revenue in the domestic market, leaving them exposed to a big currency mismatch.
Smaller companies and those without government links face the tightest squeeze and are likely to head the queue for equity funding, bankers say.
Indonesian poultry feed firm PT Malindo Feedmill Tbk plans to sell around $51 million worth of new shares to pay some loans including U.S. dollar debt. But its shares fell 5 percent on Tuesday to below the indicative offer price, increasing uncertainty over the funding plan.
In Malaysia, plantation firm Sime Darby Bhd, which completed its $1.7 billion acquisition of Papua New Guinea-based New Britain Palm Oil Ltd this year, said it is looking at ways to strengthen its balance sheet. Local media earlier reported the firm planned a 6 billion ringgit ($1.4 billion) rights issue to pay down foreign debt.
"Deeply discounted rights issues backed by major shareholders could be back," said the head of an emerging markets-focused investment bank, adding these would typically have to be at discounts of about 25 percent.
No crisis just yet
"There's a worry for Indonesian and Malaysian companies, but most companies that issued dollar bonds are fairly big and, as long as they have access to onshore liquidity, they should be fine," said Jeffrey Yap, chief investment officer at Ark One, a credit-focused hedge fund.
S&P has downgraded three Indonesian firms - PT Japfa Comfeed Indonesia Tbk, PT Gajah Tunggal Tbk and PT MNC Investama Tbk - partly due to their currency mismatch.
Aggregate outstanding foreign currency bonds for corporate sectors in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam grew almost 120 percent to nearly $85 billion between 2009 and 2014, S&P said, citing data from the Asian Development Bank. It said outstanding foreign currency bonds also nearly quadrupled in Indonesia and Thailand and nearly tripled in the Philippines.
State firms and big companies, which have more flexibility than small firms, are also looking to restructure their debt or reviewing their investment plans.
"If there's a weakening of the rupiah like right now, our calculations for capex in rupiah will definitely be different," said Murtaqi Syamsuddin, investment planning and risk management director at Indonesian state utility PT Perusahaan Listrik Negara.
"We need to intensely communicate the impact of the currency changes to the government as our main stakeholder," he said, adding that its revenue is in rupiah, while investments are partly funded with foreign currencies.
Axiata Group Bhd, Malaysia's biggest mobile operator by market value, plans to restructure a $590 million loan in Indonesia into a rupiah-denominated partial sukuk to reduce its exposure to forex volatility.
And telecoms firm PT Indosat Tbk is seeking to reduce the dollar portion of its debt to 20-30 percent this year from around half, Andromeda Tristanto, investor relations officer, told Reuters. It may take out new bank loans and restructure existing debt.
That said, few big dollar bonds are due imminently or showing signs of a major default, and the situation for companies is not as bad as it was in the 1997-98 Asian financial crisis.
"Definitely, it's not 1997. If you look at the leverage ratios on balance sheets, they're far healthier than where we've been in the past," said Harsha Basnayake, head of EY's ASEAN transaction advisory services practice.
"That also allows them to take on a little more shock than what they have experienced."