LONDON: The coronavirus pandemic has had a devastating impact on companies around the world, but in poorer emerging economies where balance sheets and credit ratings were already weak, the damage is looking particularly widespread.
Corporate debt in emerging markets has been on a sharp upward trend over the past decade, increasing by US$18 trillion to US$30 trillion in the run-up to the COVID-19 outbreak, according to the Institute of International Finance. Dropping out of the coveted IG bracket matters because some large conservative money managers will not buy or retain weaker-rated assets, meaning borrowing costs rise.
GRAPHIC: Default rates starting to rise in emerging markets - https://fingfx.thomsonreuters.com/gfx/mkt/qzjvqjobnpx/Pastedper cent20imageper cent201591353000309.pngNot all investors are so pessimistic. Fund manager PineBridge estimates that US$215 billion worth of securities are now rated BBB-, the final rung of the investment grade ladder, representing 21per cent of the entire IG EM corporate market, privately-held or state-owned.
Moreover, of the 20 EM firms now in S&P's default danger zone, only Argentine oil and gas firm YPF and energy utility Pampa Energia , have more than US$1.5 billion of bonds to their name. So the effect of defaults across the EM universe is limited, Cook argues.
Not yet...
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