Bulletin – December Quarter 2015 US Dollar Debt of Emerging Market Firms Abstract

US dollar-denominated borrowings by emerging market (EM) corporations have increased rapidly in recent years, raising concerns about possible currency mismatch risk. This article uses firm-level data from the top 100 EM corporate bond issuers and Bank for International Settlements data on cross-border bank lending at the economy level to gauge such risk. These data indicate that around two-thirds of the largest issuers of US dollar-denominated corporate bonds are at least in part naturally hedged (based on company-specific information), and a significant share of the remaining borrowers are state-owned enterprises. The largest recipients of foreign currency bank loans by country also appear to derive significant US dollar export revenues. This suggests that most EM corporations that have borrowed in US dollars are well placed to weather an appreciation of the US dollar, particularly given the possibility that some have hedged their exposures via financial markets. However, Chinese property developers may be an exception and some EM resource companies may face difficulties as a result of the current low global commodity prices. Corporations will also face higher financing costs on their US dollar-denominated debt as the US Federal Reserve moves to increase its policy rate.

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