SLL thinks the emerging market corporate debt crisis has already arrived, and this article has a good summary of the situation. From Tyler Durden at zerohedge.com:
Back in October we brought you “Chinese Cash Flow Shocker: More Than Half Of Commodity Companies Can’t Pay The Interest On Their Debt,” in which we highlighted a report from Macquarie that contained the following rather disconcerting data point: “…more than half of the cumulative debt in the Chinese commodity sector was EBIT-uncovered in 2014.”
That’s right, “more than half,” and before you say “well, it is commodities and it is China after all,” consider that for the entire universe of CNY22 trillion in corporate debt, the “percentage of EBIT-uncovered debt went up from 19.9% in 2013 to 23.6% last year.” So, nearly a quarter.
In November, we revisited the idea (presented in these pages more than 18 months ago), that China may have reached its dreaded Minksy Moment, as Chinese corporates are set to take out some CNY7.6 trillion in new loans this year just to pay interest on their existing borrowings. As Morgan Stanley put it last year, China looks to be reaching “the point at which Ponzi and speculative borrowers are no longer able to roll over their debts or borrow additional capital to make interest payments.” You know what happens next, and we’re already seeing it as the number of onshore defaults accelerates.
This is part of a wider discussion about EM corporate debt in a world where EM FX has plunged and investor confidence in the space is rapidly deteriorating in the face of low commodity prices, a strong USD, a looming Fed hike, and a series of idiosyncratic political risk factors playing out from Brasilia to Ankara to Kuala Lumpur.
With that in mind, Deutsche Bank is out with a new special report on EM debt which has quite a bit of useful color on exactly where things stand for corporate borrowers across a variety of emerging economies.
To continue reading: Will 2017 Be The Year Of The EM Corporate Debt Crisis?
