14 de marzo de 2016 / 7:03 / en 2 años

RPT-INVESTMENT FOCUS-It's payback time for emerging markets' $1.6 trillion debt

(Repeats story published on Friday)

* Graphic on debt issuance, maturities: tmsnrt.rs/1Rb4n8S

By Karin Strohecker

LONDON, March 11 (Reuters) - Recent signs of stabilisation in emerging markets may merely be the calm before the storm - a $1.6 trillion debt mountain is due for repayment in the next five years, a steep rise in maturities that could stir fresh trouble.

The debt-servicing hump - with annual repayments jumping by more than $100 billion by 2020 compared with 2015 - is a result of a borrowing spree after the 2008 financial crisis.

From African governments to Turkish banks, developing world borrowers flogged their debt on hard-currency bond markets in post-crisis years, encouraged by near-zero U.S. interest rates that sent investors hunting for higher yields.

But it’s payback time.

Almost $1.6 trillion is due for repayment from 2016 to 2020 with corporate debt accounting for more than three-quarters of the total, according to data from ICBC Standard Bank. For a graphic on emerging market debt issuance and maturities, see tmsnrt.rs/1Rb4n8S

Until now, a relatively light maturity schedule for company debt along with rock-bottom global interest rates have capped defaults in the $2 trillion corporate debt sector. But weak commodity prices, higher U.S. interest rates and above all, the sheer volume of repayments could make things tricky.

“The wall can’t move out, and there are two reasons for that” said Bhanu Baweja, UBS head of emerging markets research.

“One is that it is so levered up already and it is levered up precisely in the sectors that could see trouble - financials and energy - but also because global markets have become less generous than they used to be.”

Many emerging governments have seen their credit ratings downgraded in recent months and many more could follow, doing little to soothe investors’ nerves.

A likely pressure point is the energy sector after a plunge in crude prices to below $30 earlier this year, from more than $110 just 18 months ago.

“Oil and gas is one of the sectors facing pressure on a fundamental basis,” said Brigitte Posch, head of emerging market corporate debt at Babson Capital Management.

Some smaller, private companies will inevitably have to restructure debt, she believes, but warns a bigger headache could stem from state-run, quasi-sovereign firms.

Posch notes quasi-sovereigns such as Brazil’s Petrobras or Mexico’s Pemex make up more than 80 percent of the bonds maturing in the sector over the next four years.

That can pose a spillover risk to governments, should they need to support these entities, she added.

Just over a quarter of outstanding hard-currency debt due over the next three years is from energy and materials firms, Baweja estimates. Financials account for almost a third.

While government support makes companies’ debt safer for investors, it tends to transfer risk to the sovereign and raise in turn borrowing costs for all other firms, said Baweja, with financials looking particularly vulnerable.

UBS data shows Turkey’s gross debt refinancing needs are the highest in emerging markets when compared with its hard currency reserves. Hungary, Indonesia, South Africa and Russia are not far behind.


One consequence of the borrowing spree is that emerging market companies are increasingly ploughing money raised from markets back into repaying maturing debt, the International Monetary Fund has warned.

That percentage has rocketed to almost 30 percent in 2014 from less than 5 percent in 2005, it said.

Already, competition between potential issuers is hotting up, with London and New York have recently seen swathes of roadshows by governments, testing investors’ appetite for new bond sales.

But most investors dismiss fears of a huge rise in defaults, especially if the U.S. dollar - which has risen 22 percent in the last two years - fails to strengthen further.

In a world of rock-bottom interest rates, that would keep investors keen on yields provided by emerging bonds, they say.

“I don’t think deterioration will go very fast from here, especially if you expect that the over-reaction of the dollar is over, which will make interest payments (feasible) for companies,” said Sergio Trigo Paz, head of emerging debt at BlackRock.

And with most developed central banks some time away from tightening policy, global borrowing costs are likely to remain low, with 10-year U.S. Treasury yields - the reference point for most emerging debt - still below 2 percent.

“With yields at these levels I don’t see huge problems in refinancing ... default rates are likely to remain low,” said Steve Ellis, a fund manager at Fidelity International.

But a sticking point could be credit quality.

Standard Bank data shows 34 percent of the debt maturing in the next five years is junk-rated while another 8 percent is unrated. Issuers may face a hard slog.

“At the top level we are saying ‘yes we need yield’ because (developed) central banks are pushing us into that, but we are doing it more prudently,” said Salman Ahmed, chief global strategist at Lombard Odier

“Investors will be more nuanced about which credits we give money to because the time for blind yield-grab is over.”

Additional reporting by Sujata Rao; Editing by Pravin Char

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