SE Asia economies set for squeeze as big firms line up spending cuts

[BENGALURU] As profits sag and debt mounts, more Southeast Asian firms are set to join the likes of Malaysian oil giant Petronas in cutting capital expenditure, casting a cloud over economic growth in a region better known as a development hotspot.

Amid sharp currency depreciation and weak commodity prices, a Reuters survey of latest quarterly data available for 113 big regional firms shows profit slid 38 per cent in the quarter ended last September, the most in at least six years.

Debt is at a seven-year high: at current cashflow generation rates, it would take the firms 2.9 years to repay loans, up from 2.5 in 2008.

Coping with that will mean region's firms cutting capex by an expected 10 per cent in the next 12 months, a survey of Reuters StarMine SmartEstimates shows.

That will rob Southeast Asian economies of key domestic support, just as China's slowdown overshadows global prospects for all.

"The only way (for companies) to control leverage is to control spending", said Standard & Poors analyst Xavier Jean.

The US$11 billion cut planned by Petronas over the next four years may not be topped by other firms, but the overall impact will be fewer jobs and less domestic investment.

The capital expenditure estimates make for grim reading across the region. According to StarMine SmartEstimates, Singapore firms' spending may fall 16 per cent, followed by Thailand with a 12.5 per cent drop and Indonesia with a five per cent cut.

REUTERS