Recent rate hike by BNM may have negative impact on highly-leveraged companies. The following list of highly-leveraged companies is generated based on these criteria:
- Current ratio < 1x
- Debt / Total Equity > 50%
- Interest Coverage < 1x
Source: Screener, iTrade CIMB
As expected, six of the screened candidate companies are in the Oil & Gas / related industries. Others are from challenging industries such as auto, real estate, consumer / retail and others.
What is more concerning is when a company has negative interest coverage. One possible way to meet the debt service obligations is to incur additional debt, which in turn will increase the company’s overall gearing level.
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