BackChina Forex losses jump 13-fold as investors brace for more
Some 980 listed Chinese companies reported combined foreign-exchange losses of 48.7 billion yuan ($7.5 billion) for last year, almost 13 times the amount in 2014
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Hong Kong: The impact of August’s yuan devaluation has shown up in Chinese publicly traded companies’ annual results—and investors are bracing for more pain.
Some 980 listed Chinese companies reported combined foreign-exchange losses of 48.7 billion yuan ($7.5 billion) for last year, almost 13 times the amount in 2014, Bloomberg-compiled data show. Profits at those firms slumped 11% last year to 789.2 billion yuan.
State-owned oil refiner China Petroleum & Chemical Corp., or Sinopec, reported 3.9 billion yuan in net FX losses, increasing from 179 million yuan in 2014.
The yuan’s 4.5% tumble last year, the largest since 1994, swelled financing costs for Chinese companies, the biggest dollar borrowers in Asia. More depreciation in January triggered a global stock rout and contributed to a 31% first-quarter drop in Chinese dollar bond sales. While the renminbi has rallied against the US dollar for two months, it is still weakening against a basket of currencies.
“Continued yuan depreciation will definitely impact Chinese companies’ bottom line," said Raymond Chia, the Singapore-based head of credit research for Asia excluding Japan at Schroder Investment Management Ltd., which manages about $446.5 billion.
“In some cases, the impact is severe. Although one can argue FX impact is non-cash, it does impact the company’s credit ratios and debt servicing ability."
The airline sector was hurt most with a combined foreign-exchange loss of 17.9 billion yuan for 2015, compared with 951.7 million yuan a year earlier, Bloomberg-compiled data show. The big three state-owned airlines—China Southern Airlines Co., China Eastern Airlines Corp., Air China Ltd.—suffered the equivalent of $2.5 billion in FX losses.
China Southern Airlines had the biggest FX loss among all companies of 5.7 billion yuan in 2015. An official in investor relations department at the airline, who asked not to be identified, said Tuesday the carrier plans to cut the proportion of its dollar debt to 50% of the total by year end from 61% currently by refinancing with onshore yuan bonds. Two calls to the investor relations department of Sinopec went unanswered.
China’s real estate companies, Asia’s biggest dollar high-yield borrowers, were the second most-hit with combined foreign-exchange losses of 11.9 billion yuan, up from 1.4 billion yuan in 2014. Evergrande Real Estate Group Ltd. said on March 29 its FX loss from borrowings was 2.84 billion yuan in 2015, or 27 percent of its net income, up from 47 million yuan in 2014.
Agile Property Holdings Ltd., based in the southern province of Guangdong, recorded FX losses from borrowings and convertible bonds of 1.13 billion yuan in 2015, compared with 83 million yuan in 2014, according to its 23 March earnings.
“Agile will continue to cut FX exposure by part repaying offshore debts and using onshore financing for local projects," said Maggie Chui, an outside consultant for the company at IPR Ogilvy & Mather. “Furthermore, the company has done some FX hedging deals in 2016."
Jimmy Fong, investor relations official at Evergrande, said the builder will consider issuing more onshore bonds to lower costs and will consider early dollar debt redemption if costs are attractive.
Chinese firms have cut foreign-exchange risk by redeeming $2.24 billion of overseas notes before maturity this year, up from $925.8 million a year earlier, Bloomberg-compiled data show.
Six of the eight companies that called bonds were builders, which had binged on dollar notes amid cheaper rates offshore and restrictive rules on local issuance.
China Oilfield Services Ltd. plans to raise 10 billion yuan to pay back dollar bonds that account for 95% of debt, chief financial officer Li Feilong said at a press conference in Hong Kong on 30 March. Air China plans to cut dollar debt to 60% of its total by year-end from 73.5% at the end of 2015, Lv Lingfei, deputy general manager of finance, said at a briefing in Hong Kong on 31 March.
Chinese companies have become increasingly aware of exchange-rate risk and started to consider hedging dollar liabilities about a year ago, said Raymond Yeung, a Hong Kong-based senior economist at Australia & New Zealand Banking Group Ltd. “However, it was not until the sharp depreciation last August that they paid serious attention to the issue."
The yuan has dropped about 4.1% against the dollar since the August depreciation. Among the worst-hit industries were energy and mining, with foreign-exchange losses of 5.5 billion yuan and 3.9 billion yuan in 2015, respectively, the data show.
“Chinese companies have been under downward economic pressure, which is exacerbated by FX losses," said Cheng Shi, co-head of research at ICBC International Research Ltd. “There are high chances for the yuan to depreciate this year with rising volatility. Companies should be more aware of FX risk." Bloomberg
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