Corporate Financing Trends and Balance Sheet Risks in Latin America

By Fabiano Rodrigues Rodrigues Bastos, Herman Kamil, Bennett W Sutton

January 22, 2015

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Fabiano Rodrigues Rodrigues Bastos, Herman Kamil, and Bennett W Sutton. Corporate Financing Trends and Balance Sheet Risks in Latin America, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Easy global liquidity conditions, stronger risk appetite and a retrenchment in cross-border bank lending led to a surge in emerging market firms’ bond issuance in international markets (what we term “The Bon(d)anza”). Using firm-level data for five large Latin American economies, we provide evidence of a significant change in companies’ external funding strategies and liability structures after 2010, as well as in the balance sheet risks that firms face. We find that stepped up bond issuance was mostly aimed at re-financing rather than funding investment projects, as firms extended the average duration of their debt while securing lower fixed-rates, reducing roll-over and interest rate risks. The shift towards safer maturity structures has come at the expense of a leveraging-up in foreign-currency-denominated financial debt in several countries— reversing a de-dollarization trend seen during the last decade. We also provide evidence that a substantial part of these bonds were issued through offshore vehicles, suggesting regulatory and tax arbitrage strategies. For some corporations, rising dollar debt and high leverage will be particularly taxing in an environment of US dollar strengthening, less buoyant commodity prices and slowing domestic activity.

Subject: Bonds, Currencies, Debt service, Depreciation, External debt, Financial institutions, Financial statements, Money, National accounts, Public financial management (PFM)

Keywords: Bond, Bond financing, Bond issuance, Bonds, Brazil, Capacity distribution, Corporate leverage, Currencies, Debt, Debt issuance, Debt service, Debt-servicing capacity, Depreciation, Financial market hedging, Financial markets, Financial statements, Foreign currency, Global, Latin America, Mexican NFCs, Net debt, NFC debt, NFC foreign-currency debt, NFC issuance, NFCs from Brazil, Parent company, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/010
Stock No:

WPIEA2015010
ISBN:

9781498307802
ISSN:

1018-5941

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