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:

  1. Current ratio < 1x 
  2. Debt / Total Equity > 50%
  3. Interest Coverage < 1x

HLCo_28Jan2018

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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