A FX stress analysis showed that Turkish corporates are the most exposed among EMEA emerging markets to a scenario of slowing growth, rising interest rates and a persistently weak local currency, Fitch said on Monday.
Foreign-currency - typically USD- debt can be an effective hedge against exchange-rate risks for companies with significant dollar receipts, but can also create risk when used by companies with mostly local-currency revenues, according to Fitch. This is the case for many Turkish corporates, which are lured by headline lower interest rates for dollar borrowing and by the depth of overseas capital markets, the rating agency stressed.
Fitch explained that in its stress case it modelled the impact of a 15% currency depreciation in 2014 and 2015, combined with a halving of issuer-specific corporate growth forecasts and a 250bps increase in average interest rates on local-currency debt, as well as higher rates on foreign-currency debt that needs refinancing. Under this scenario, aggregate leverage for Fitch-rated Turkish corporates rose by around 1.5x, while fixed-charge coverage ratios halved, Fitch said. These risks are largely already reflected in its ratings, as many of these companies are in the 'B' rating category, Fitch asserted.
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