Asian companies will now focus on risk: Survey

Asian companies will now focus on risk: Survey

MANILA (AFP): Blindsided by plunging currencies, Asian companies which failed to hedge their foreign currency debts now face funding problems and will have to devote more time to managing risks, a survey released yesterday said.

The survey of chief financial officers (CFOs) of 110 firms operating in Asia showed 55 percent of them did not use hedging instruments, according to organizers of a regional conference here.

"To me this is an alarm bell," said Geoff Cutmore, stocks editor for broadcasting firm NBC Asia, a co-sponsor for the meeting organized by U.S. credit rating firm Standard and Poor's and Business Week magazine. "It's quite a worrying number."

Generally, "very little foreign currency exposure in Thailand was hedged," he said, while in Indonesia "they quickly moved to hedge their positions" once the crisis broke out.

"My guess is that they never heard of them," despite the fact that most CFOs of these firms are hired professional managers, said Charles Newton, executive of conference co-sponsor Burson- Marsteller, a communications consulting firm.

The issue of cost could have also been a factor for their failure to hedge their exposure, he added.

"I think they have since changed their mind on the issue."

Forty-five percent of those surveyed said "at least 50 percent of their foreign exchange exposure" was protected. Most said they used forward contracts as protection. Other hedging instruments used were cross-currency and interest rate swaps, currency options and futures.

As the financial crisis in the region worsens, Newton said "there is a lot of confusion among CFOs on the direction of the market."

"There is no clear consensus on what the future may hold."

Newton said the CFOs surveyed, representing large and medium- sized Western and local companies operating in Asia, planned to shift company debts to longer maturities of between 10 and 30 years.

Over the past year, none of them had issued any debt instruments with due dates longer than 10 years, the survey found.

Getting longer maturities "is going to be pretty difficult," as "no financial institution is going to be able to project the future," Newton said. In this environment, only companies "with strong fundamentals" are in with a chance.

Forty-four percent of the executives plan to tap banks for financing, 26 percent expected to look at international capital markets, 18 percent planned to tap the domestic market and 12 percent the domestic stock markets.

More companies now expected to go to the markets for higher amounts of financing, the survey added. Their main purpose was for long-term capital, capital asset acquisition and improvement, with just 7 percent needing the money to re-finance existing debt.

"This group is one which recognizes that risks have changed, but it would appear that they plan to deal with them as much as in the past," Newton said.

"That being said, there is some evidence that the focus on managing risks will increase, and that risk management is a much greater concern than it has historically been."

Cutmore said that while many CFOs reported "good sales numbers" in the first half, "no one is quite sure how badly they will be affected in the next six to 12 months."

Asked what they expected was the biggest risk for business in the next 12 months, 38 percent of the executives cited foreign exchange risks and 32 percent were worried about interest rates. Political risk was cited by 10 percent.

The financial turmoil has slashed the value of many Southeast Asian currencies against the dollar by more than 30 percent and sent interest rates soaring as central banks sought to defend their currencies.