Exchange rate risk from borrowing foreign currency

On August 19, 2015, the State Bank of Vietnam has decided to adjust exchange rate USD/VND. Accordingly, the average inter-bank VND/USD exchange rate increases from 21.673 to 21.890 (by +1%), at the same time, the exchange rate go up from +/-2% to +/-3%.

After the decision of expanding USA/VND exchange rate to +/-2%, Vietnam has been facing depreciation of VND against USD on average in the region since beginning of the year.

Overall, we think that the adjustment of exchange rate and increasing USD/VND exchange rate is an appropriate step to minimize the impact of devaluation of Chinese Yuan (CNY) to domestic economy.

The expansion and adjustment of exchange rate will benefit export corporates. However, depending on the monetary policy of China and the flexibility in political management of Vietnam, there are certain influences on sectors as well as domestic manufacturing companies.

According to the General Statistics Office of Vietnam, the most exporting items are computers, electronic products and components, textile, footwear, agricultural, forestry and aquatic products. The listed companies mainly focuson exporting likeTCM, KMR, GTN, VHC, HVG, TTF, GDT could benefit from the adjustment of USD/VND exchange rate.

However, many enterprises, which have huge foreign currency loans as VOS, VNA, PVT, NT2 may be affected negatively. Some enterprises, which borrow and generate income in foreign currency, will not be affected significantly when USD/VND exchange rate is adjusted as PVD.

Especially, there are various risks to the shipping industry in which debt ratio is high, and potentially affected by the devaluation of VND due to loan borrowing in foreign currencies (mainly USD). On average, the shipping industry with debt/equity ratio stands at 0.87 while other companies are up to 3.7.

Source: Vietnam Investment Review