Emerging market firms' $18t debt needs monitoring

London - Regionally, the most striking shifts had been in China and Latin America where overall corporate leverage was now at almost 120 per cent and 110 per cent respectively.

By Reuters

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Published: Wed 30 Sep 2015, 12:00 AM

Last updated: Wed 30 Sep 2015, 10:28 AM

The International Monetary Fund warned on Tuesday that emerging market firms, which together have amassed a record $18 trillion of debt, need careful monitoring as the era of record low global interest rates comes to an end.
In its latest Global Financial Stability report, the fund said the biggest rises in "leverage" - the amount of debt relative to a firm's equity - had come in "vulnerable sectors" like construction, mining and oil and gas, and were increasingly exposed to currency risk.
Regionally, the most striking shifts had been in China and Latin America where overall corporate leverage was now at almost 120 per cent and 110 per cent respectively, and leverage in their construction sectors close to 275 and 200 per cent.
"The upward trend in recent years naturally raises concerns because many emerging market financial crises have been preceded by rapid leverage growth," the report said. The IMF also warned that years of record low rates had meant that despite weaker balance sheets, emerging market firms had been able to issue more bonds, and at better terms.
"If rising leverage and issuance have recently been predominantly influenced by external factors [low global rates], then firms are rendered more vulnerable to a tightening of global financial conditions," the report added.


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