Debt

Kotak cash call shows India Inc’s fear and greed

28 May 2020

A well-subscribed $1 bln share placement is sufficient to defend the richly valued lender against credit-quality doomsday. Barring that, it’s a massive war chest for acquisitions. Boss Uday Kotak, Asia’s richest banker, is prepared for both deep disruption and deep discounts.

Europe has way out of Covid corporate debt trap

27 May 2020

Germany, Britain and France have approved $140 bln in state-backed loans to firms. As that number rises, so does the risk of a damaging debt overhang. Linking repayments to profit, so that some companies pay nothing, would help forestall that growth-sapping scenario.

Guest view: Debt crisis will delay global recovery

25 May 2020

The world is facing an emerging market blowup of unprecedented breadth that will damage confidence in the international financial system, former Citibank Chairman William Rhodes and Stuart Mackintosh argue. Easing the blow requires the United States and China to work together.

Debt hero role awaits China at rich price

21 May 2020

Beijing has deferred loan payments from poor countries, but with over $900 bln in IOUs from emerging markets, officials are hesitant to do more. China’s banking opacity deters cooperation. If it wants to seize leadership, it will have to come clean.

African debt holiday choices open new divisions

20 May 2020

Kenya won’t take up a G20-backed offer to poorer nations to suspend debt repayments. That’s because private creditors may take a dim view of such a move, irrespective of what ratings agencies say. Africa’s laggards have to accept the offer and will look worse in comparison.

India’s economic pick-me-up earns half marks

18 May 2020

The five-part, $277 bln plan includes jobs for fleeing migrants and relaxed rules on debt defaults. A privatisation push is one of many longer-term vows. Upfront spending is sparing, however, and bailouts absent. Growth will take a bigger hit before it has a chance to roar back.

Debt forgiveness is, unfortunately, a bad idea

14 May 2020

Over 300 officials from around the world have urged the IMF and World Bank to cancel poor countries’ debt. But that would favor heavier borrowers, it doesn’t ask for any accountability, it could limit future lending, and it hands advantages to China. A debt standstill is safer.

Emerging markets will see less index, more Rolodex

13 May 2020

Epic Federal Reserve action has stemmed an unprecedented flood of capital from developing countries. But ongoing virus concerns make it risky to invest by lazily following an index. Sensible fund managers will now need to appreciate the local nuances of the places they buy into.

Argentina’s whiz kid may flunk restructuring test

7 May 2020

Martin Guzman, the 37-year-old economy minister, is trying to get a deal with holders of over $65 bln of debt using academic theories about what's sustainable. He makes valid points but the clock is ticking before default. Pragmatism is needed – otherwise it may tick for him too.

Virus offers Pakistan grim bargaining opportunity

5 May 2020

Debt payments suck up the largest chunk of its budget. Islamabad’s $8 bln crisis support package is measly, yet will push the fiscal deficit to 10% of GDP. Pakistan needs more than repayment deferral from creditors, especially China. And it’s better positioned to ask than most.

America could actually shirk its debts to China

3 May 2020

It would cause market chaos and give a clear reason to avoid the dollar. But Donald Trump would find it surprisingly easy to effectively renege on China’s $1.1 trln of U.S. Treasuries, using broad powers he already has. It’s only a matter of time before the idea gains traction.

Debt freeze for poor nations is in interest of all

30 April 2020

Private creditors can choose to join rich countries in giving lower-income economies a payments holiday. The G20, IMF and World Bank have sticks and carrots to encourage participation. And a temporary pause is better than a series of defaults that would disrupt emerging markets.

GE boss’s options are to shine or shrivel

27 April 2020

Larry Culp’s recent goal of reducing the company’s $59 bln of debt to a manageable level this year is toast: It relied on cash flow from the airlines unit. He could hunker down, but that risks making GE weaker. Selling, say, a stake in the healthcare business would be wiser.

European banks’ bad-debt pain threshold

27 April 2020

The continent’s major lenders have bigger capital buffers and are getting help from regulators. However, their balance sheets are expanding and income is dropping, while many borrowers are at risk of default. This calculator shows what level of bad loans banks can safely absorb.

Europe’s big banks can weather 2009 times three

27 April 2020

Shares in the region’s top lenders have plunged as investors fret about a surge in bad debts. Yet a Breakingviews calculator shows most capital buffers can absorb a spike three times as bad as the 2009 average. Taxpayer bailouts or widespread equity hikes are unnecessary for now.

Guest view: Mutual debt is spectre haunting the EU

22 April 2020

European leaders meet on Thursday to discuss how to tackle the economic costs of the pandemic. Collective borrowing is the most contentious item on the agenda. Carlo Altomonte of Bocconi University and Fabrizio Pagani of Muzinich explain how a joint “recovery fund” might work.

Car industry’s growth engine is running on fumes

21 April 2020

The churn of new car lease sales has come to a grinding halt in March. It’s a double whammy for the likes of Ford and VW that are facing steep devaluations on cars that will be handed back by cash-strapped customers. A painful financial reckoning lies around the corner.

Glencore mine grab would have a tiny silver lining

20 April 2020

Zambia may seize assets, including the commodity giant’s Mopani copper mine, to help with Chinese debt relief, the WSJ says. That would make the African state a pariah and confirm fears of debt-trap diplomacy by Beijing. At least Glencore might win some useful U.S. sympathy.

Dixon: How will pandemic debts be paid for?

20 April 2020

The UK introduced income tax to fund the Napoleonic Wars. America imposed it to pay for the civil war. The coronavirus pandemic is not literally a war. But it will lead to massive borrowing. Higher taxes are a better way to repay it than austerity, default or inflation.

EU virus aid is no panacea for Italy’s debt woes

17 April 2020

The country ravaged by Covid-19 could draw on an EU euro bailout fund to help manage the pandemic. But interest savings look small, unless the ECB also helps. Political resistance to use such funds means Rome probably won’t use the aid until it faces a bond market crisis.