MALAYSIAN businesses are paying a high price for their country’s weak currency that is making importing material and servicing foreign debt more costly.
With the ringgit hitting a 26-year low, industries from airlines to raw material-intensive sectors are particularly at risk, according to S&P Global Ratings.
The ringgit has slid to its lowest level since the Asian financial crisis in the late 1990s and the government has assigned the central bank to closely monitor the currency, Malaysian Prime Minister Anwar Ibrahim said on Friday (Feb 23).
The local currency last week slipped past 4.8 against the US dollar, the weakest level since January 1998, during the height of the Asian financial crisis.
“We have already been feeling the impact as the ringgit has been falling,” said Chin Chee Seong, national secretary general at the SME Association of Malaysia. “Now it will be even more severe. Those of us in the services sector that import materials and products will lose even more.”
The weak ringgit could add strain to Malaysia Airlines, still recovering from restructuring its debt in 2021, as well as budget-carrier AirAsia.
“The airline sector is the most exposed to risks due to currency mismatch in operations,” said Xavier Jean, S&P senior director for corporate ratings in Singapore, adding that they have expenses, including fuel and leases, in US dollars and revenue in ringgit.
“Debt in these companies is often denominated in dollars,” Jean said. “They have the double whammy of operating and financial exposure to currency depreciation.”
Malaysia Airlines declined to comment about the impact of the currency weakness on the company’s bottom line.
AirAsia Group CEO Tony Fernandes said in an interview he is not concerned about the ringgit “as it’s mostly sentiment”. While 70 per cent of the carrier’s costs are paid in dollars, “we have good ancillary income and fares are strong”, helping to buffer the company against the weak local currency, he said.
Construction companies that depend on imported raw material, as well as telecommunication firms, whose capital spending are in US dollars, also face a financial fallout, S&P said.
For Axiata Group, Malaysia’s biggest wireless carrier, the biggest concern is the rising cost of servicing debt. The company has about US$3.6 billion of dollar debt.
“The real concern is we have a large dollar debt, about 50 per cent of that is hedged already,” said Vivek Sood, the company’s chief executive officer.
Some companies, such as state-owned oil and gas company Petroliam Nasional, are in a position to benefit from the plunge in the ringgit. A significant amount of its operations is either in foreign markets or pegged to the US dollar, S&P said.
Sime Darby Plantation said the weak ringgit is beneficial for the company, as well, because its revenue is in US dollars.
“That is actually very promising for us,” said chief financial officer Renaka Ramachandran. “We bring in dollars and convert them into ringgit.” BLOOMBERG
