Top 100 Asean firms at risk of default

SOUTH-EAST Asia's 100 largest publicly traded companies are becoming more vulnerable to default as their debt surges and profitability weakens. Debt-to-earnings ratios rose last year at the fastest pace since 2011, as average return on capital at the biggest firms by market value fell for the first time since 2008, according to data compiled by Bloomberg. In the past four years, their debt rose 89 per cent to the equivalent of US$500 billion.

Average economic growth in Indonesia, Malaysia, Singapore, Philippines, Thailand and Vietnam fell to just under 5 per cent last year from 8.5 per cent in 2010, forcing companies to rely more on borrowing than earnings to finance their investments. Outbound acquisition activity from the Asean region has tripled in the past five years as companies sought growth abroad.

"More and more debt is financing less and less growth," Singapore-based Xavier Jean, a director of corporate ratings for Standard & Poor's, said in a Sept 11 interview. "The only way for these companies to keep growing seems to be leveraging up." S&P released a study last week that said the escalating debt levels among Asean's blue-chip companies will increase vulnerability when interest rates start to rise. Internal cash flows and cash balances funded only about half of the US$300 billion the region's largest companies spent on expansion and acquisitions between 2008 and the first quarter of 2014, S&P said. About US$150 billion of debt was issued to bridge the gap.