The coronavirus pandemic has had a devastating impact on companies around the world, but in poorer emerging economies where balance sheets and credit ratings were already weak, the damage is looking particularly widespread.
Of the almost 1,800 rating cuts or downgrade warnings S&P Global has made since the virus exploded, 420 have been in emerging markets, nearly half of all the EM issuers the rating agency monitors.
With Latin America now the epicenter of the pandemic the numbers are set to rise further. Defaults, missed payments on coupons or principal, are also likely to jump. Moody’s, another rating agency, predicts up to 13.7% of EM corporate bonds of sub-investment or junk grade may default, meaning the proportion could narrowly top the 2008 financial crisis.
Corporate debt in emerging markets has been on a sharp upward trend over the past decade, increasing by $18 trillion to $30 trillion in the run-up to the COVID-19 outbreak, according to the Institute of International Finance.
All that extra borrowing means the drag on company earnings, which are now expected to slump 4% rather than grow 15%, is magnified – and not just in terms of defaults.
April’s downgrade of Mexico’s state oil firm Pemex alone saw nearly $60 billion worth of bonds, representing 6.6% of the EM investment grade (IG) market, lowered to speculative grade.
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