Competition for Funds

 

As you can see from chart 1, more than $2 trillion of European and U.S. bank debt needs to be re-financed before the end of next year. Unless there is a material improvement in market conditions, re-financing at such a massive scale is simply not doable.

 

 

Chart 1: Maturing Bank Securities in 2009/10 (USD)

 

 

Effect on real companies across the Globe

Company debt defaults may increase from Russia to Brazil and India as the global recession curbs export revenue, pushes down local currencies and makes banks reluctant to refinance, according to Standard Chartered Plc.

 

Businesses across emerging markets have more than $218 billion of bonds and syndicated loans coming due in 2009, according to data compiled by Commerzbank AG. Russian companies need to repay $54 billion of debt, followed by Mexican issuers with $29 billion coming due and Brazilian firms with more than $24 billion.

 

Currencies from all three nations have dropped more than 20 percent against the dollar in the past year, increasing the cost of servicing foreign-currency obligations.

 

Emerging-market companies sold $119 billion of debt in 2006, $95 billion in 2007 and $38 billion last year, according to Commerzbank.

 

The yield spread on emerging-market corporate debt over U.S. Treasuries has swelled to 24.40 percentage points from 5.9 percentage points in June 2008, according to Merrill Lynch & Co.’s Global Emerging Market Corporate index.   The yield premium on Brazilian iron-ore producer Cia. Vale do Rio Doce’s $2.5 billion bonds due in 2036 almost doubled to 500 basis points over U.S. Treasuries of similar maturity from 286 basis points a year ago, data compiled by Bloomberg show.

 

 

 

 

 

Brazil’s central bank President Henrique Meirelles unveiled plans last week to provide more than $20 billion to help 4,000 or more companies meet international debt payments this year.

 

“If global international banks continue to retreat, and the equity market continues to go down, and credit continues to be pretty much frozen, my guess is that local corporates will need more support from the government, central banks and state banks,” said Grimeh

 

Emerging-market stocks tumbled 54 percent in 2008 and have dropped 9 percent so far this year, based on MSCI Inc.’s index for developing-nation shares. Emerging-market corporate debt lost 34.8 percent in 2008, according to Merrill’s Global Emerging Market Corporate index.

 

 

Brazil:

 

Brazil and its companies as they seek to refinance $64 billion in maturing foreign debt this year  (http://www.bloomberg.com/apps/news?pid=20601086&sid=aV1c1m8kWoiU&refer=latin_america)

 

 

Germany:

 

Financial Times Deutschland on Wednesday reported that Berlin is weighing the establishment of a €100 billion ($132.7 billion) fund to provide German companies with liquidity should they run into refinancing difficulties. "We can't allow momentary difficulties to drive companies into bankruptcy," an unnamed conservative politician told the paper.

 

 

 

 

 

 

 

 

 

 

News Stories:

 

Petrobras Puts Off Bond Sale, Saying International Markets `Too Expensive' Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, put off plans to sell bonds because the cost for borrowing on international markets is “too expensive,” Chief Executive Officer Jose Sergio Gabrielli said.

 

Mexico's Vitro Tells Bondholders to Prepare for Debt Restructuring Talks Vitro SAB, the Mexican glassmaker whose bonds have lost more than 66 percent of their value in the past five months, called on creditors to prepare for restructuring negotiations, said two people who participated in a conference call set up by the company’s financial adviser.

 

Brazil Loan Defaults Reach Six-Year High as Economy Slows, Credit Tightens Brazilian loan defaults surged last month to the highest since September 2002 as Latin America’s largest economy slowed and the credit crisis increased borrowing costs, making it more difficult for consumers to repay debt.