KUALA LUMPUR - Malaysian businesses are paying a high price for their country’s weak currency, which is making importing materials 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 Feb 23.
Malaysia’s central bank said on Feb 27 that the ringgit is undervalued and should be trading higher on account of the country’s positive economic fundamentals and prospects.
Bank Negara Malaysia governor Abdul Rasheed Ghaffour said in a statement that the central bank has stepped up engagements with government-linked investment companies, government-linked firms, corporations and investors to encourage continuous inflows to the foreign exchange market.
“Given Malaysia’s positive economic fundamentals and prospects, the ringgit ought to be traded higher,” he said.
The ringgit last week slipped past 4.8 against the United States dollar, the weakest level since January 1998, during the height of the Asian financial crisis.
It strengthened slightly to 4.779 against the dollar by 1.04pm on Feb 27, and was trading at 3.5552 against the Singapore dollar.
“We have already been feeling the impact as the ringgit has been falling,” said Mr Chin Chee Seong, national secretary-general of 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 Mr Xavier Jean, senior director for corporate ratings at S&P in Singapore.
He added that the airlines have expenses, including fuel and leases, in US dollars and revenue in ringgit.
“Debt in these companies is often denominated in dollars,” he 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 chief executive officer Tony Fernandes said he is not concerned about the ringgit “as it is mostly sentiment”.
While 70 per cent of the carrier’s costs are paid in US 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 materials, as well as telecommunication firms, whose capital spending is in 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 (S$4.8 billion) of US dollar debt.
“The real concern is we have a large dollar debt, about 50 per cent of that is hedged already,” said Mr Vivek Sood, the company’s CEO.
Some companies, such as state-owned oil and gas company Petronas, are in a position to benefit from the plunge in the ringgit.
A significant amount of its operations is either in the foreign markets or pegged to the dollar, S&P said.
Sime Darby Plantation said the weak ringgit is beneficial for the company because its revenue is in US dollars.
“That is actually very promising for us,” said its chief financial officer Renaka Ramachandran.
“We bring in dollars and convert them into ringgit,” he added.
BLOOMBERG
