By Srinivasan Sivabalan at Bloomberg
The commodity-price slump and the slowdown in China’s economy are crippling developing nations’ ability to borrow abroad, even as international debt sales from advanced nations remain at a five-year high.
Issuance by emerging-market borrowers slumped to a net $1.5 billion in the third quarter, a drop of 98 percent from the second quarter, according to the Bank for International Settlements. That was the biggest downtrend since the 2008 financial crisis and reduced global sales of securities by almost 80 percent, the BIS said in a report.
Emerging-market assets tumbled in the third quarter, led by the biggest plunge in commodity prices since 2008 and China’s surprise devaluation of the yuan. The average yield on developing-nation corporate bonds posted the biggest increase in four years, stocks lost a combined $4.2 trillion and a gauge of currencies slid 8.3 percent against the dollar. Sanctions on Russian entities and political turmoil in Brazil and Turkey also affected sales by companies in those countries.
“Weak debt-securities issuance in the third quarter can only be partially explained by seasonality,” the latest quarterly review from the BIS said. “Growing concerns over emerging-market fundamentals, falling commodity prices and rising debt burdens probably played a role. Additionally, an increasing focus on local markets may also have been a factor.”
One side effect of the decline in international-debt sales was the emergence of the euro as a borrowing currency. The net issuance of securities in the shared currency by non-financial companies was $23 billion in the three months through Sept. 30, while dollar-denominated debt accounted for $22 billion. The main reason for that was a jump in euro-bond offerings from emerging markets, where the share of the currency went up to 62 percent from 18 percent in the second quarter.
Borrowers from advanced economies issued a net $22 billion in debt, $100 billion less than in the preceding three months. Still, cumulative figures remained the highest since 2010 because of the increases in the first half of the year.