The Emerging-Market Distressed-Debt Club Is Getting Very Crowded

LAGOS (Capital Markets in Africa) –  The bonds of emerging-market nations are entering distressed territory at an alarming rate as the soaring dollar raises the prospect of government defaults.
Fifteen nations now have dollar-bond spreads of at least 1,000 basis points over U.S. Treasuries, a level many investors consider to be the threshold for debt to be classed as distressed. And that doesn’t even include Lebanon, which defaulted this month, and Argentina, which has begun restructuring talks with bondholders.
At the beginning of the year, only Lebanon, Argentina, Zambia and Suriname had spreads of 1,000 basis points. But that was before fears over the coronavirus and the crash in oil prices roiled global markets, sending the dollar into orbit.
Ecuador and Zambia are the countries investors appear most concerned about. The former, whose Eurobonds due in March 2022 yield more than 70%, was hit by popular protests last year. The decline in crude prices and delays to International Monetary Fund disbursements from a $4.2 billion loan have only added to the worry.
Read more: Ecuador Debt Is Looking a Lot Like Argentina’s as Oil Slumps
Zambia has been battered by weakening copper prices and drought, which has led to power cuts caused by low water levels at its hydroelectric dams. Many investors have said it could default without an IMF program, though the government has shown little willingness over the past year to negotiate one.
The list includes several other African countries, such as Angola, Gabon, Nigeria and Cameroon. Iraq is the only Middle East country in the distressed zone, though Oman’s spreads are nearing 1,000 basis points too. Asian nations barely feature.

Source: Bloomberg Business News