Online extra: Loans market under stress
As in the bond market, emerging markets corporates will come under stress in the loans market. Refinancing needs are estimated to be $156 billion, with the biggest redemptions due in Russia, UAE, Mexico, Turkey and Korea, according to JPMorgan. And it is not just weaker credits that will be under pressure.
Even supposed blue-chip companies, such as Mexico’s Cemex, India’s Tata Steel and Russia’s Rusal, face big refinancing risks this year. All three have been caught out by the credit crunch and are under pressure to finance expensive acquisitions.
Cemex, for example, is struggling to keep its debt burden under control following its $14 billion acquisition of Australian firm Rinker in 2007. Although Cemex refinanced about $4 billion of debt due this year in late January, it still faces $2 billion in maturities. The company recently announced a net loss of $707 million in the fourth quarter with operating profit down 35% from a year ago. Net debt at the end of December was four times 12-months ebitda, at $18 million.
Tata Steel too is struggling after paying over the odds for the UK’s Corus in 2007, which it acquired for $12 billion. Morgan Stanley reckons that Corus’s debt covenants may be under pressure soon, according to a report in India’s Business Standard. Indeed the entire Tata group is coming under scrutiny after buying equity stakes of 21% or more in 53 countries since 2000, making it especially vulnerable to the global downturn.