These debt-ridden firms will be in big trouble if interest rates spike

Commodity traders are at risk.

Highly-geared commodity trading houses like Noble Group and Olam will be among the most vulnerable companies if interest rates suddenly spike.

Maybank Kim Eng used a worst-case scenario of a 10% cut in revenue, 10% FX depreciation and 100bp hike in interest rates.

The report said that a sudden increase in interest rates will negatively impact offshore and marine firms, as well as property counters. Apart from these sectors, other companies such as Noble, Olam, Courts, Centurion and Midas are at risk of debt default.

“For a healthy company, cashflow should cover at least three times interest costs, in our assessment. Depending on loan covenants with debtors, breaching the minimum could be considered a default. [These] stocks could be at risk of debt defaults under extreme interest-rate and cashflow pressure,” said the report.