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10 I Companies & Markets bne July 2018
CEE/CIS economies at risk from high corporate indebtedness
Clare Nuttall in Bucharest
Corporate debt in the countries in the European Bank for Reconstruction and Development (EBRD) region of operations has increased strongly, with much of it denominated in foreign currencies, a senior EBRD economist warned on June 12.
“We have seen an increase in overall corporate debt to around 60% of GDP in 2018 from 42% in 2007,” commented EBRD lead economist, economics, policy and governance Roger Kelly at a presentation of the bank’s 2017-18 Transition Report in Bucharest.
Taking into account that a large share of the debt is denominated in foreign currencies, “It doesn’t take much of an appreciation in advanced economy currencies for this debt to increase substantially,” he said.
Kelly described rising corporate debt as “a fairly major risk in a lot of our economies”, especially those whose currencies are at risk of depreciation.
Data published by the EBRD in its May 2018 Regional Economic Prospects report shows that non-financial sector corporate debt as a percentage of GDP is highest in Cyprus, at a staggering 477% of GDP.
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The rates are more manageable across the rest of the bank’s area of operations but still close to 90% of GDP in Mongolia, where the lion’s share is external debt. Mongolia’s economy has been recovering recently following a $5.5bn IMF-led bailout in 2016 and a rise in commodities exports to China. The country also saw its first major corporate debt restructur- ing in 2017; coking coal producer Mongolian Mining Corp successfully restructured $800mn worth of debt after failing to service a $200mn loan facility and missing an interest pay- ment on its $600mn bonds.
Non-financial sector corporate debt as a percentage of GDP: corporate debt rose markedly, much of it in forex.