OREANDA-NEWS. Asia Pacific financial institutions and corporates rated by Fitch Ratings will not be negatively affected by the sudden surge of the Swiss franc (CHF) following last week's decision by the Swiss National Bank to remove the currency's cap against the euro. Swiss franc exposure, either through CHF-denominated liabilities or reliance on Swiss imports, is minimal for these firms.

Fitch rates 10 financial institutions (FI) and 10 corporates with outstanding CHF-denominated bonds in the Asia Pacific (APAC) region. The currency exposure is fully hedged in most cases; the impact is expected to be minimal for those exposures that are not hedged, given the small amount of CHF-denominated debt as a proportion of total debt.

The APAC FIs with outstanding CHF bonds are mainly the Australian and New Zealand banks, including Commonwealth Bank of Australia, National Australia Bank, and ANZ Banking Group. The banks have used the Swiss market to diversify their funding sources over the past four years; each of these banks has small exposures to that currency market through their franc-denominated bonds.

However, their CHF funding as a proportion of total wholesale funding has typically been and remains below 5% as of end-December 2014. In general, it is common market practice in Australia and New Zealand that banks hedge all foreign-currency funding for the duration of the issued instrument. The banks' credit exposures to customers with CHF facilities have also remained insignificant. Fitch does not expect a significant change to the Australian and New Zealand banks' funding sources as a result of the recent franc appreciation.

APAC corporates with outstanding CHF bonds are concentrated in Australia and South Korea. Corporates in Australia include Amcor, AusNet Services Holdings, and Telstra, while those in South Korea include Korea Gas, Korea Land and Housing, Korea National Oil, and SK Telecom. In most cases, these firms have fully hedged their CHF exposure over the duration of the bonds back into either the local currency or the US dollar.

Following the sudden 20% appreciation of the CHF, the proportion of total outstanding debt denominated in CHF for these companies remains less than 5%, and the required coupon payments in CHF are typically well below 2% of their EBIT.

Indian telecommunications company Bharti Airtel stands out as an exception, with no hedging in place for its outstanding CHF350mn bond. Nevertheless, the issue represents only 4% of Bharti's total debt, and the required annual CHF coupon payments are relatively small at just 0.5% of Bharti's EBIT.