International borrowing by companies in some emerging markets now matches the output of their economies, leaving bondholders more vulnerable to interest rate or currency shocks, according to report made by the Bank for International Settlements.
Borrowers from Brazil to China may need to refinance about $90bn next year and as much as $130bn by 2017-2018, economists Michael Chui, Ingo Fender and Vladyslav Sushko wrote in the BIS Quarterly Review.
According to Basel-based BIS, companies in developing countries gave almost $375bn of international debt between 2009 and 2012, more than double the amount sold in the four years before the 2008 financial crisis.
Higher rates or weaker currencies could push up bond yields which in turn would hold back growth, damaging issuers, economies and bondholders including international investors and local banks.
Increasing interest rates and depreciating exchange rates will likely to raise the cost of servicing these debts, denting profits or depleting capital cushions unless apt hedges are in place, the BIS economists reported.
“Stress on corporate balance sheets could rapidly spill over into other sectors, inflicting losses on the corporate debt holdings of global asset managers, banks and other financial institutions.”