The companies are due to reveal their first half results soon, starting with Aerostar Bacau (ARS.RO) next week.
The companies listed on the Bucharest Stock Exchange totaled 34 billion lei (about EUR7.3 billion) last year. More than half of the debt was in foreign currency. They will have to record financial losses in their balance sheet as a result of the reassessment of the debts in euros or dollars caused by the appreciation of the two currencies against the leu.
For instance, a company with EUR10 million in debt will post about RON1.3 million financial losses in the first half, as a result of the debt reassessment. If calculated at an exchange rate of RON4.6 to the euro, the company would lose RON2.8 million from the reassessment of the EUR10 million, after the European currency has gained 6% since the beginning of the year.
The companies with dollar-denominated debt are even worse hit because the dollar has gained 5.9% on the leu in the first half and 13.8% since the beginning of the year. The accounting losses caused by the reassessment of the debt in dollars are about twice higher than those in euros.
“Most companies work with loans in foreign currency because they pay lower interests and had expectations for a stabilization of the exchange rate at RON4.1 to RON4.3 against the euro, and this stabilization reinforced their belief that it is sustainable and companies chose lines of credit in foreign currency,” says Adrian Danciu, head of the research department of Broker Cluj.
The companies most affected by the weakening of the leu over the last few months include Rompetrol Rafinare (RRC.RO), heavily indebted in dollars; its loans in foreign currency amounted to RON3.28 billion at the end of last year, that is one third of its 2011 revenue, RON10.1 billion.
Transelectrica Bucuresti (TEL.RO) had almost RON900 million worth of foreign currency debt on December 31, 2011, most of which in euros. It, too, might post a negative result because of the reassessment of its debt given the weaker leu on June 30, about RON4.45 to one euro. Its income might be significantly affected in the second half, as well, if the exchange rate remains at the current level of RON4.6 to one euro.
Other companies affected are Dafora Medias (DAFR.RO), Cemacon Zalau (CEON.RO), and Impact Bucuresti (IMP.RO), whose foreign current debt was higher than their 2011 revenue.
Still, some of the companies on the stock market, such as exporters or those that get paid in foreign currency for their merchandise, actually benefit from a weakened leu against the euro and the dollar because they get more lei for the same products.
For instance, fertilizer producer Azomures Targu-Mures (AZO.RO) exported 65% of its production last year and has little debt in foreign currency.
Automotive component manufacturer Compa Sibiu (CMP.RO), which exports 80% of its production and has low debt in foreign currency (18% of its revenue), too, could benefit from the weaker leu.
Even so, specialists warn that the volatility of the markets might reduce demand the companies get and therefore affect their business.
Although exporters normally benefit from a weaker leu, in many cases they gain less from this because they have to import raw material at higher prices, such as the pharmaceutical industry does.
If the company has foreign currency debt, like Antibiotice Iasi does, the negative financial income cancels out the growth of sales. The same goes for Compa, which exports 80% of its production but has foreign currency debt,” explains Dragos Darabut, general manager of asset manager Vanguard Asset Management.
“One of the major companies exposed to currency risk is Transelectrica, whose indebtedness stands at 48%, and more than 80% of its debt is denominated in euros, dollars and yen. As for the banking sector, and the SIFs (regional investment funds i.e.) with high exposure to banks, the leu depreciation is leading to an increase in lending risk for the banks that granted loans in euros.”
(English version by Loredana Fratila-Cristescu)