FITCH: TURKISH, KAZAKH COMPANIES MOST EXPOSED IN EMEA TO FX RISK.
Turkish corporates are the most exposed among EMEA emerging markets to the risks of a rise in US interest rates and a strengthening dollar, due to their large unhedged FX exposures, Fitch Ratings says.
Across our EMEA portfolio of rated companies, Kazakh issuers are the next most exposed, while Russian, Ukrainian and South African companies are mostly better hedged.
Over 85% of Turkish corporate debt is denominated in US dollars, while the majority of revenues are in Turkish lira.
These large unhedged FX exposures can lead to a rapid deterioration in financial ratios as the local currency weakens.
Risks are exacerbated by the presence of bullet repayments due to the prospect of companies needing to quickly raise significant amounts of hard currency when access to foreign-currency markets may be limited.
These risks are already reflected in Turkish corporates' credit ratings, which are generally in the 'B' category despite their conservative leverage.
Kazakhstan's state-ow ned enterprises (SOEs) are often attracted by US dollar debt's low yield, long tenor and open availabilit y, which they can tap as a statesupported entity.
However, the state's step-change devaluations automatically inf lict increased leverage upon their SOEs, while assuming that the SOEs will still have access to foreign currency borrowing when refinancing approaches.
There is a danger that the central authorities in charge of FX rates and overseeing SOE debt issuance miscalculate the balance of risks.
Corporates in EMEA emerging markets are now more vulnerable to future shocks from FX, rising interest rates or weakening markets than they have been for the past few years.
This is due to the combination of currency depreciation and lacklustre growth, which has reduced financial flexibility by pushing up median EM corporate leverage and reducing fixed charge cover.
We expect these metrics to improve in 2015 and 2016 as economic conditions gradually improve, but they are still likely to remain weaker than in 2011.
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|Publication:||Cambodian Business Review|
|Date:||Aug 31, 2015|
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