- Corporate borrowing costs are near the highest since 2011
- Currency rout driving up the cost of refinancing for importers
A $23 billion pile of debt is stifling emerging-market companies already strained by the tumble in commodity prices to 16-year lows and weaker currencies.
The bonds in U.S. dollars, which come due before the end of 2016, have become more expensive to roll over or repay after the selloff triggered by China’s yuan devaluation this month sent yields soaring to close to the highest levels in four years. Brazil’s Petroleo Brasileiro SA and billionaire Carlos Slim’s Mexican wireless company America Movil SAB are among the 10 most-burdened borrowers, according to data compiled by Bloomberg.
As many companies avoid the extra cost, bond issuance has fallen 21 percent this year to the lowest since 2011, the data show. What’s more, currencies including Russia’s ruble, the South African rand, Brazil’s real and the Mexican and Colombian pesos have slumped at least 12 percent in 2015, driving up the cost local manufacturers would need to pay to settle their foreign-currency debts.
"It’s a difficult environment to print new bonds," said Trieu Pham, a credit strategist at Mitsubishi UFJ Securities International Plc in London. “Credit costs are edging higher and some companies might find it more difficult to issue new debt and repay existing debt.”
Companies in Brazil, whose largest trading partner is China, have the biggest bill at $8.1 billion, followed by firms in Russia with $6.8 billion.
“If they have dollar debt and they haven’t hedged, this will be putting strain on their balance sheet,” said Samantha Lamb, London-based investment director for credit at Standard Life Investments Ltd., which has $83 billion of bonds under management.
Exporters are cushioned by the slide in their local currencies since their revenues are in dollars and costs are often largely domestic, she said. This offsets part of the burden of a 20 percent slide in commodity prices from oil to copper this year.
Still, the cost of borrowing is getting more expensive across the board. The average yield on the Bloomberg U.S. Dollar Emerging Market Corporate Bond Index has soared almost one percentage point this quarter to 6.37 percent on Aug. 25.
There are also domestic considerations that risk impeding borrowing abroad. Brazil was downgraded by Moody’s Investors Service to its lowest investment grade this month, Russian companies have curtailed access to global debt and equity markets due to sanctions over Ukraine, and Turkey is facing new elections after the collapse of coalition talks.
"We will see some companies stalling," said Manuel Guerena, a Hague, Netherlands-based senior credit analyst for the emerging markets debt team at Neuberger Berman, which has $251 billion of assets under management.