“Emerging Markets Debt” includes debt issued offshore and, in turn, invested into an operating business in an emerging market such as any of the BRIC, other Latin American countries, sub-Saharan Africa and other Asian countries.1 No doubt that global factors are affecting Emerging Market companies more than enterprise specific factors, particularly low interest rates and a search for yield by western investors. The convergence of (1) the determination by emerging market enterprises to access capital at historically low cost for a predictable and longer term, and (2) the investors’ drive to find a higher yield have promoted record levels of Emerging Market Debt.

Emerging Market Debt analysis should include debt incurred locally by an EM Enterprise and EM Debt issued offshore by an EM Holding Company with the proceeds invested in (or loaned to) the EM Enterprise. Deflation in commodity prices and the China slowdown signal imminent and major levels of default, particularly in EM Debt issued offshore. Commentaries on the anticipated EM Debt defaults focus on in-country debt and the stability of the relevant financial system, sometimes to the exclusion of the offshore EM Debt.2 Distress Investors focus on offshore EM Debt as potentially distressed. The bridge between the two analyses, if the European experience is any guide, is that both expect EM Debt defaults to cause a liquidity shortage in the local financial system. Yet, EM Enterprises will still need capital.

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