Moody’s heralds higher defaults rates among EM companies

With $170 bn in FX debt payments over the next 12 months, Turkish private sector ought to carefully  monitor global credit conditions. Despite nearly endless money printing by Fed, BoJ and ECB, these have not improved for low-rated Developing Nations, or their firms, claims Moody’s.

Defaults by weaker emerging market companies will rise in 2020 and 2021 as the effect of the COVID-19 pandemic hampers business activity, Moody’s forecast on Thursday.

The ratings agency said the trailing 12-month speculative-grade default rate for emerging market firms would rise to between 7.8% and 11.2% by the end of 2020, from the low level of 2.2% in March.

The rate will then rise further by March 2021 to the 8.3% to 13.7% range, it forecast.

“The collapse in domestic aggregate demand and export demand has weakened EM (emerging market) corporate profitability and liquidity.”

Many low-rated emerging market governments were poorly prepared to deal with a large public health crisis and had limited fiscal and monetary capacity to stimulate their economies, it said.

“The global spread of the coronavirus has led to business closures and restrictions on social interactions in many countries,” Moody’s said in a report.

Depressed oil prices will likely persist during the year, adding another strain to exporters of the commodity, it added.

On 7 April, Fitch already flagged Turkey as one of the riskier EMs. Refinancing risk for Turkish banks has increased due to their large maturing foreign-currency (FC) external debt and exposure to investor risk aversion during the coronavirus pandemic, Fitch Ratings says in a new report. A global risk-off scenario will result in a fall in banks’ outstanding foreign debt and could test their FC liquidity. FC deposit outflows triggered by corporate and household cash shortages and weaker confidence could also strain liquidity. However, banks enter the downturn having moderately strengthened their liquidity buffers since mid-2018.

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