The depreciation of currencies in Asia is making the repayment of loans costly for Asian companies which borrowed money from foreign funds in recent years as the U.S. Federal Reserve kept interest rates low and printed money.
The Wall Street Journal reports that foreign funds are pulling out of Asian bonds and other assets amid expectations U.S. rates will rise further. The move is pushing currencies in Asia sharply lower and raising the cost of repaying U.S.-denominated borrowings.
Indian companies, for instance, have a combined $100 billion of unhedged foreign debt, according to data from Indian ratings firm Crisil, an affiliate of Standard & Poor's. A nearly 18.5% fall in the rupee since May has increased the cost of repaying those debts in local currency terms.
Among the companies heavily affected is Reliance Communications. The telecommunications company has $3.83 billion in unhedged foreign debt coming due through 2020, according to its annual report. About $200 million is due to be repaid this year and $681 million next year. The company's borrowings already are affecting profitability.
Indonesia's companies are also struggling to pay off debts. For instance, PT Indosat, one of the nation's largest telecom companies, has almost $1 billion in offshore debt, which it took out to fund equipment purchases at a time when U.S. rates were much lower than Indonesia's.
But the rupiah has lost almost 12% against the U.S. dollar this year, increasing the cost of debt, only about a quarter of which is hedged.
"Obviously, the currency factor is a concern," Stefan Carlsson, Indosat's chief financial officer told the Journal. He adds that Indosat may book currency-related losses but will be able to repay its borrowings.