Thai corporates face increasing pressure from the coronavirus pandemic, with 38% of corporate issuers under coverage clustered in a high-exposure sector, says Fitch Ratings.
"Around 62% of our 21 Thai corporate issuers rated on the National Scale have 'low' rating headroom, while 38% are in a 'high'-exposure sector, and 29% have both 'low' leverage headroom as well as being in a 'high'-exposure sector," Fitch said in a report titled "Coronavirus Screener for Thai Corporates Rated on the National Scale".
Of the 38%, 29% or six issuers share the high-risk factors of low rating headroom and operating in a sector with high coronavirus exposure.
Energy (particularly oil and gas), chemicals, technology and property are identified as the sectors most exposed to downside risks stemming from the pandemic, in addition to reduced demand caused by government-mandated restrictions that affect leisure travel and put pressure on commodity pricing, Fitch said.
The energy and chemical sectors have been under pressure since 2019 and are likely to be depressed further by a combination of demand shock from the coronavirus, an increase in supply from new petrochemical capacity and inventory loss from a sharp drop in oil prices, the ratings agency said.
For instance, Fitch revised its outlook on PTT Global Chemical Plc to negative from stable on March 31, 2020 and downgraded IRPC Plc to A-(tha) from A(tha) on April 2, based on expectations that these companies' leverage will remain elevated in 2020 and 2021 due to weak demand and margin pressure from the outbreak.
The spread of the virus and the government's measures to control it have intensified in Thailand over the last three weeks, resulting in disruption to travel, business and daily life.
The growing disruption in consumer behaviour to avoid public places, plus government-enforced restrictions on non-essential store openings, moved the non-food retail sector into Fitch's high-risk category for near-term coronavirus-related cash-flow impact.
Some companies in the high-risk category are taking steps to weather the near-term impact. These include cost cutting, reducing capital spending, clipping dividend payments and shoring up liquidity buffers with revolver drawdowns.
A prolonged reduction in demand would, however, put greater pressure on revenue and earnings, Fitch said.
Supply-chain disruption remains a medium-term risk as the impact remains unclear, given uncertainty about the depth and duration of the ongoing pandemic, the agency said.
Producers of alcoholic beverages and building materials are corporates assessed as having a moderate level of coronavirus exposure.
Utilities, telecommunications and food retailing are identified as having the least exposure, given the essential nature of their products or services.
"The full scale of coronavirus will take time to become clear, but it is already having a significant impact on some of the most exposed corporate sectors in Thailand," Fitch said.