Standard & Poor's warns of wave of bankruptcies in emerging markets next year

Standard & Poor's credit rating agency warned of an increased risk of companies in emerging markets defaulting on their debts, and even going bankrupt, amid rising financing costs and a significant increase in outstanding obligations.

The average amount of outstanding debt in emerging markets, excluding China, is expected to reach $47 billion between 2024 and 2027, compared to an average of $20 billion this year, according to S&P data.

"Competition for liquidity among issuers in the next two years will intensify," said a report by S&P led by Elia Olivros-Rosen. "It is unlikely that issuers will wait until 2025 to refinance."

In the note, analysts said that "issuers will be forced to return to the market in 2024 as interest rates remain high. Many issuers may not be able to withstand these conditions, leading to a wave of defaults and bankruptcies."

Keeping interest rates high for an extended period, slowing global growth, and a strong dollar will all exacerbate pressure on weaker companies. Latin America is the weakest point in emerging markets, as the region accounted for 13 of the 14 corporate defaults in August, according to S&P in September.

The average cost of borrowing for issuers of dollar-denominated high-yield bonds in emerging markets rose to its highest level since November 2022 this week, touching 11.8%, according to the Bloomberg index.