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Fourth echelon

Corporate dollar debt explodes in mexico as peso dives

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RECIPE FOR A DEBT CRISIS.

In the emerging markets, private-sector debt has become a doozie: In 2014, EM non-financial corporate debt reached a record high of 83% of GDP, up from 67% in 2009. The problem is that part of this debt is denominated in a foreign currency.

Between 2015 and 2017, some $645 billion of non-financial corporate debt will mature in emerging markets, with USD-denominated bonds accounting for around $108 billion, warns the Institute of International Finance. And with non-performing loans already rising while the dollar strengthens, some EM banks, particularly those that have increased their foreign-currency lending, could face serious challenges.

The countries that have seen the largest increases in non-financial corporate indebtedness are China, Brazil, and Turkey. But Mexico is not far behind. According to a new report in El Financiero, in the first half of 2015 the total debt of a sample of 50 publicly listed companies had risen 22% year-over-year.

The main reason? The peso’s decline against the dollar. In the last year alone, the Mexican peso has lost 21% of its value against the dollar. Corporations can borrow more cheaply in dollars. But as the peso falls against the dollar, the dollar-denominated debt held by Mexican corporations with peso-denominated operating income becomes increasingly difficult to service. A recipe for a debt crisis.

http://www.blacklistednews.com/_Corporate_Dollar_Debt_Explodes_in_Mexico_as_Peso_Dives_/45577/0/38/38/Y/M.html

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