Most Chinese non-property companies can withstand 10% yuan depreciation - Moody's
By Gaurav Sharma
Date: Tuesday 01 Sep 2015
(ShareCast News) - Most of China's utility, infrastructure and non-property companies can withstand a 10% depreciation of the yuan, according to a study conducted by ratings agency Moody's.
It analysed 70 of its rated companies and found that most had sufficient financial cushion to cope with such a depreciation. The depreciation assumption includes the weakening that followed the 11 August change in the mechanism for determining the daily fixing rate of the yuan against the dollar.
Clement Wong, associate managing director at Moody's said, "The 70 companies that we analysed held 48% of their debt in currencies other than yuan as of 31 December 2014, including offshore bonds and bank loans. Most of that debt was unhedged."
"Nonetheless, some of these companies generate revenues in US dollars. These revenues provide a natural hedge against interest expenses and principal amounts rising in renminbi terms," added fellow analyst Vivian Tsang. "Other companies, particularly investment-grade ones, have strong liquidity positions, and low to moderate debt levels."
Of the 70 companies, only one investment-grade company and four speculative-grade ones would come under increased downward rating pressure, using Moody's analysis of a 10% weakening of the yuan.
In addition, a 10% yuan depreciation could stimulate export growth, with possible economic benefits for many of the non-property companies, the ratings agency noted.
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