S&P sees improvement in Emerging Markets debt

Credit conditions are improving globallyeven in emerging markets, characterized by a greater number of speculative grade issuers, even if i potential risks they remain high and of financing costs Like this expensive to make access to international credit markets prohibitive. This is what emerges from a S&P report on speculative grade issuers of Emerging Countriessuch as Argentina, Brazil, Chile, Hungary and so on.

The number of “junk” broadcasters is decreasing

The S&P report indicates that the number of issuers with a “CCC+” or lower rating decreased to 16 to December 2023, from 17 September 2023 following the upgrade of the South African energy conglomerate Eskom. Risky credits now make up 11% of the speculative-grade landscape in emerging markets.

The aggregate debt of issuers rated ‘CCC+’ or lower is therefore dropped to 7.4 billion dollars in the fourth quarter of 2023, compared to $12 billion in the third quarter.

The issuers with the worst situation

The issuers with the worst situation are in Argentinathe country that has the highest concentration of debt, with 6.3 billion dollars and nine issuers with a negative outlook.

Making a breakdown by sector of activity, however, the oil and gas sector tops the risky credit chart, with Argentine oil companies YPF and Compania General de Combustibles showing aggregate debt of $3.2 billion.

The default rate is falling but the risks remain high

In the fourth quarter of 2023, the default rate in emerging markets has been lower than that of the United States and Europe and is even decreased. A result linked to improvement of economic conditions as inflationary pressures ease and financing conditions improve.

The eldest clarity on the direction of rates of interest and the prospects for cuts during 2024 have increased the risk appetite of investors in emerging markets. However, downside risk remains marked as 88% of issuers rated “CCC+” has a negative outlook or in CreditWatch negative (the percentage was 76% in the third quarter).

Speculative issues on the rise

The speculative issues have increased in the fourth quarter of 2023, due to expectations of a possible rate cut by the Fed, but they have lost momentum compared to the beginning of 2023. However, the last issue by a company rated “CCC+” or lower dates back to November 2021. Although the risk credit indexwhich reflects the yields to maturity of risky credits, reached a prohibitive level of 20% in January 2024, S&P notes that i returns of bonds issued by 67% of companies included in the index have decreased in the last two months.

“Financing conditions have improved slightly due to recent positive market sentiment towards the Fed.” said Luca Rossi, credit analyst at S&P Global Ratings, “However, i financing costs remain highlimit the access of speculative-grade issuers to foreign markets and make options refinancing on average three times more expensive compared to the coupon rates at the time of the initial issues”.