Moody’s Focuses on Emerging Currency Risk Amid Record Bonds

Moody’s Investors Service said it’s assessing the risk of currency depreciation damaging the creditworthiness of emerging-market companies after record foreign bond sales.

Companies from 15 emerging markets sold a record $130 billion of bonds in dollars and euros last year, Moody’s said in an e-mailed report. Total corporate and government international issuance may soar to a peak of $600 billion this year from $430 billion last year, and reach $1 trillion in three years, Hakan Wohlin, global head of debt origination at Deutsche Bank AG in London, said in an interview yesterday.

“The amount of U.S. dollar and euro debt outstanding has increased considerably year-by-year, and with it the risk of currency mismatch,” Moody’s analysts including Philip Robinson in London said in the report.

While companies are benefiting from plunging bonds yields spurred by interest rates in the U.S., Europe and Japan at virtually zero, issuers may be vulnerable to increased repayment costs if their revenue isn’t in the same currency as they’re borrowing in, according to Moody’s.

Among the currencies highlighted by the ratings company are the South African rand, which has tumbled 8.2 percent against the dollar in 2013, making it the biggest loser among 24 emerging-market currencies tracked by Bloomberg. Moody’s also mentioned the Czech koruna, which has fallen 5 percent, and the Russian ruble, which has lost 2.6 percent.

Issuance Outlook

“We would consider in our rating assessment the effect of a potential currency depreciation on a company’s immediate liquidity,” the Moody’s analysts wrote. “Where interest or principal payments are due in the near future, there is clearly little time for a reversal of the exchange rate movements.”

Moody’s said it would base assessments on the strategy for dealing with any currency depreciation and any mitigating factors including cash held in the borrowing currency.

Foreign bond sales this year included an $11 billion offering by Petroleo Brasileiro SA (PETR3) this week, according to data compiled by Bloomberg.

“Going forward, issuance activity will remain high,” Wohlin at Deutsche Bank said by phone yesterday. “Deals such as Petrobras will not be unusual.”

To contact the reporter on this story: Lyubov Pronina in London at

To contact the editor responsible for this story: Gavin Serkin at

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