SINGAPORE -- The end of the U.S. zero-rate policy will likely force Asian companies already smarting from the Chinese slowdown to confront a changed landscape as flows of cheap cash that had gushed into emerging markets reverse course.
With the local currency pegged to the dollar, the Hong Kong Monetary Authority hiked its base rate 25 basis points just five hours after the American rate hike Wednesday. The move came as Hong Kong's real estate market saw housing prices more than double over seven years thanks to a 0.5% rate. The liftoff by the U.S. Federal Reserve will likely cause "a price adjustment of around 10%," said an executive at major Hong Kong real estate firm Cheung Kong Property Holdings.
Emerging-country companies held $18 trillion in debt in 2014, up 350% over a decade, according to the International Monetary Fund. And the Asia300, consisting of 331 listed blue chips selected by the Nikkei Asian Review, had a total balance of $254.5 billion in dollar-backed bonds as of the end of November -- marking a jump of 90% over five years.
As developed nations adopted monetary easing after the 2008 financial crisis, Asian companies took advantage of the low interest rates to procure funds, supporting their growth. But they now risk being shackled by their dollar-denominated debt.
These hazards are already starting to materialize in foreign exchange losses. Thai Airways International booked a 4.5 billion baht ($124 million) forex loss for the quarter ended September. With more than 60% of the carrier's liabilities backed by such foreign currencies as the euro and the dollar, the weakened baht dealt a severe blow.
Funds will also cost more to procure. Chinese real estate giant Shimao Property Holdings has suspended issuing dollar-backed bonds overseas, for example.
New game plans
With investors looking to capitalize on the rate hike by shifting funds toward the U.S., Asian companies have begun diversifying their fundraising methods.
Malaysian energy giant SapuraKencana Petroleum issued $200 million in multicurrency Islamic bonds this September to refinance some of its dollar-backed debt, which has climbed to nearly $4 billion. Philippine conglomerate Metro Pacific Investments took out 16.5 billion pesos ($348 million) in fixed-rate loans this December.
The U.S. rate hike amid slowing Chinese demand delivered a one-two punch to Asian companies. The Samsung group signaled its exit from the chemical industry by selling units to the Hanwha group in June and announcing in October that it would offload other affiliates to the Lotte group. The deals will enable Samsung to concentrate resources in fields where it holds a competitive edge.
In Taiwan, chip tester and assembler Advanced Semiconductor Engineering announced Monday plans to turn rival Siliconware Precision Industries into a wholly owned unit through a tender offer. MediaTek decided this year to purchase competitors.
Amid declining Chinese demand, return on assets for fiscal 2014 fell short of fiscal 2010 figures at more than 70% of the Asia300. Production equipment bought with cheap money failed to deliver expected results.
Others are also reassessing their strategies. Malaysian palm oil giant Felda Global Ventures Holdings and Indonesian conglomerate Saratoga Investama Sedaya are backing away from previously planned acquisitions.
A bright spot
Major Asian stock markets rallied after the U.S. rate hike, with falling local currencies seen as a boon to major players. Malaysian rubber glove maker Top Glove performed particularly well. It rose 10.9% on Thursday, buoyed by bullish September-November earnings announced two days before. Net profit surged 160% from a year earlier, and the weak ringgit is expected to make exports more profitable. Armed with a cheap ringgit, the company aggressively courted customers, and its global market share now reaches 25%.
Philippine restaurant operator Jollibee Foods climbed 3% on Thursday. The weak peso is expected to boost remittances from overseas, spurring consumer spending.
Nikkei staff writers Yasuo Awai in Hong Kong, Tetsuya Abe in Beijing, Sadachika Watanabe in Jakarta, Minoru Satake in Manila and Yukako Ono in Bangkok contributed to this article.