Expect more sovereign defaults over the next 10 years as debt burdened countries struggle to refinance, S&P Global Ratings says

Heading towards EM sovereign defaults? Sovereign defaults among emerging market countries may become more common over the next decade as heavy debt burdens make it difficult for these countries to keep up with high borrowing costs, the Financial Times reports, citing a report by S&P Global Ratings. Despite a global monetary easing cycle now underway, nations at risk of default are struggling to marshall the resources needed to service foreign currency debts, with new creditors also hard to come by. The story got ink from Reuters and Bloomberg.

(** Tap or click the headline above to read this story with all of the links to our background and outside sources.)

Pulse check: Despite there being no telltale sign for a sovereign default, S&P found that in the 12 months prior to defaulting, governments spent about a fifth of their revenue paying off interest payments on accumulated debts. Countries facing potential defaults include the Maldives — which was recently bailed out by India — and Argentina.

Defaults by a different name? Argentina’s President Javier Milei okayed a decree last month that allows swaps of maturing debt for new debt at market interest rates without prior approvals from legislators. These “buyback” transactions are expected to become more common, leading to less cut and dry notions of what it means for a country to default, senior sovereign ratings analyst at S&P Giulia Filocca explained. Despite appearing distinct from traditional defaults, such transactions can be categorized as distressed exchanges if done to avoid an outright default, Filocca adds.

Who’s safe for now? Zambia and Sri Lanka have managed to rebound from defaults, the FT said. Meanwhile, Kenya and Pakistan narrowly avoided defaults this year thanks to new loans — with Saudi and the UAE among those extending financial support to Pakistan — and IMF bailouts. Despite this, they are unable to tap bond markets for refinancing due to high borrowing costs charged to governments in similar situations. Ghana recently exited default after restructuring debts, and Ukraine successfully refinanced over USD 20 bn in debt payments following a moratorium on payments due to Russia’s invasion.

BUT- Nations that have restructured their debts carry that legacy in terms of lower ratings. “That points to the possibility of repeat defaults,” Emea sovereign specialist at S&P Global Ratings Frank Gill said. Fiscal alternatives and current account gains on the back of FDI may help to stave off defaults, but FDI performance has shown little signs of an uptick, Gill added.

---

IN OTHER NEWS FROM PLANET FINANCE- Helmerich & Payne exits Adnoc Drilling: US oil and gas well drilling company Helmerich & Payne (H&P) fully divested its stake in Abu Dhabi National Oil Company’s (Adnoc) drilling unit, Adnoc Drilling, in a USD 197 mn transaction, according to a statement (pdf). The sale was completed through an accelerated book build (ABB), which “attracted a strong group of investors” despite unfavorable geopolitical conditions.

Background: H&P acquired its stake in Adnoc Drilling back in September 2021, making a USD 100 mn cornerstone investment during the company’s IPO. As part of the agreement, Adnoc Drilling also purchased eight FlexRig land rigs from H&P for USD 86.5 mn.

Advisors: EFG Hermes served as joint global coordinator for the ABB.

MARKETS THIS MORNING-

Asian markets are mixed at dispatch time this morning, with benchmarks we follow in Shanghai and Hong Kong slipping. Meanwhile, the ASX 200 and the Nikkei were both in the green.

Dow, Nasdaq, and S&P futures were all up slightly in overnight trading after the Dow and the S&P hit new record high closes yesterday. Futures also suggest major European benchmarks are set to start the trading day in the green a little later this morning.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.9% yesterday on turnover of SAR 7.3 bn. The index is down 0.1% YTD.

In the green: Atheeb Telecom (+10.0%), Mesc (+6.3%) and Al Majed Oud (+5.8%).

In the red: Al Baha (-7.9%), Acwa Power (-7.4%) and Al Hokair Group (-5.1%).

THE CLOSING BELL: NOMU-

The NomuC rose 1.3% yesterday on turnover of SAR 107.7 mn. The index is up 3.7% YTD.

In the green: Burgerizzr (+30.0%), Fesh Fash (+12.0%) and Amwaj International (+7.3%).

In the red: Al Rasheed (-10.0%), WSM (-5.1%) and United Mining (-4.7%)