Dollar debts of Globe and SMC ‘sufficiently’ hedged: CreditSights

By Arjay L. Balinbin, Senior Reporter

GLOBE Telecom, Inc. and San Miguel Corp. (SMC) — on a standalone basis — have sufficiently hedged their US dollar (USD) debts, according to financial research firm CreditSights, Inc.

PLDT, Inc. has substantially hedged its 2031 USD bond, although all of its hedges are currently “out-of-the-money.”

CreditSights noted that many companies fell into distress during the Asian financial crisis in 1997 “due to severe currency risks, which were largely unhedged.”

“The currencies of India, Indonesia and the Philippines have depreciated sharply against the USD in the last 1-1.5 months,” the research firm said in its latest currency risk exposure report on the corporations it covers in the region. Local currencies’ weakness was attributed primarily to the faster pace of US Fed rate hikes as compared to the Asian benchmark rates.

“The Philippine companies… have not fallen into distress due to foreign exchange problems, since these companies are owned and supported by large, long-standing conglomerates.”

According to CreditSights, Globe, whose revenues and costs are mostly in Philippine peso (PHP), has hedged 96% of its $1.1-billion debt with “cross currency swaps and call spread options.”

“A 0.9% depreciation in USD/PHP would reduce profit before tax by P1.3 billion,” it noted.

This means that the company has derivatives in place that “mitigate the risk of their dollar-denominated debts bloating in peso terms due to the latter’s depreciation,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco said in a Viber message.

“The derivatives have pre-arranged conditions which allow their holders to have access of the foreign currency at rates more favorable than what’s going on in the market right now,” he added.

Meanwhile, diversified conglomerate SMC, whose 74% of revenues are in PHP and a substantial portion of costs are in USD, has hedged 88% of its $500-millon bond with cross currency swaps and call spread options.

“A 1% depreciation in USD/PHP would reduce profit before tax by P5 billion,” CreditSights said.

“However, SMC’s USD debt issuing subsidiaries Petron and SMC Global Power have significantly inadequate USD debt hedging measures in place,”  the financial research firm also said.

Oil and gas company Petron, whose 13% of revenues and 53% of costs are in USD, has hedged 4% of its $2.2-billion debt with cross currency swaps and call spread options in the range of P47 to P57.

“A 1% depreciation in USD/PHP would reduce profit before tax by P790 million.”

SMC Global Power Holdings Corp., a power generation company whose revenues are mostly in PHP and costs are mostly in USD, has hedged 3% of its $5.7-billion debt with call spread options in the range of P52.95 to P56.15.

CreditSights said a 1% depreciation in USD/PHP would reduce profit before tax by P2.1 billion.

Meanwhile, PLDT, whose revenues and costs are mostly in PHP, has hedged 50% of its $820-million debt with cross currency swaps and call spread options in the range of P48.64 to P55.28.

“Of which, it hedged 97% of its $300-million 2031 bond in the range of P49.61 to P55.28, but its $300-million 2050 bond is fully unhedged,” the research firm noted.

“We have market perform recommendations on… PLDT… (and) outperform recommendations on SMC and Globe Telecom,” it added.

Finance website Investopedia defines market perform as a “neutral assessment of a stock and is neither strongly positive nor negative.”

“If, however, the stock has gone through a period of market underperformance, it is an indication that the stock is expected to improve its performance relative to market averages.”

Meanwhile, outperform means “the company will produce a better rate of return than similar companies, but the stock may not be the best performer in the index.”

CreditSights said its report is for informational purposes only. “Neither the information contained in this report, nor any opinion expressed therein is intended as an offer or solicitation with respect to the purchase or sale of any security or as personalized investment advice.”

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls.