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bne July 2018 Companies & Markets I 11
However, Mongolia still has a substantial debt burden connected to Belt and Road Initiative (BRI) projects, putting it at risk of future debt distress, and it is also vulnerable to a potential slowdown in China, as its giant neighbour looks to curb its own debt burden.
Meanwhile, Greece, Croatia, Turkey, Slovenia, Latvia and Bulgaria all have corporate debt at between 50% and 75% of GDP, the EBRD figures show.
“We have seen an increase in overall corporate debt to around 60% of GDP in 2018 from 42% in 2007”
“In many countries, levels of corporate debt are comparable to those in Germany and the United States although they remain below the levels seen in many other advanced economies and emerging markets. In this regard, the composition of debt is a greater source of risk than the current levels,” said the EBRD report.
This represents a significant risk to the region’s outlook; “The resilience of corporates to a significant tightening of global financing conditions is yet to be tested,” it stressed.
Turkey’s central bank finally managed to halt a dramatic slump in the lira with two hikes of its main policy rate. Despite opposition to monetary tightening from President Recep Tayyip Erdogan, the regulator stepped in to allay fears Turkey was teetering on the edge of a full-blown currency crisis.
Even before the lira went into freefall, there were signs that companies were struggling under their debt burdens. Yildiz Holding, owner of the brands Godiva chocolate and McVitie’s biscuits, agreed in May to a multi-billion dollar debt restruc- turing. Another giant Turkish holding, Dogus, is also in talks with banks with the aim of restructuring its obligations. And at the end of last month, Gama Holding, which is active in the
construction and energy sectors, said it was seeking to restruc- ture or refinance around $1.5bn worth of loans.
“[Rising corporate debt is] certainly a significant issue
in Turkey, where corporate increased their indebtedness especially in foreign currency particularly over the last five to six years to an extent that now, particularly when the lira is declining, we see significant problems arising and a lot
of request for restructuring among large corporates in the country,” Kelly said.
Croatia, meanwhile, is in the midst of restructuring former local champion, food and retail group Agrokor. After a year of negotiations that put Prime Minister Andrej Plenkovic’s government under intense pressure, a settlement deal
was announced at the end of May, though it still has to be formalised.
2017 research from the Croatian National Bank (HNB) found that almost a third of the corporate debt in Croatia is excessive, which, it said, “points to sizeable deleveraging needs in the medium term. In the event of a decline in GDP and a rise in interest rates, almost half of the existing corporate debt might become unsustainable.” The debt overhang is also inhibiting much-needed investment in
“Greece, Croatia, Turkey, Slovenia, Latvia and Bulgaria all have corporate debt at between 50% and 75% of GDP”
Croatia, which was one of the last countries to recover from the recent global economic crisis.
Similarly in neighbouring Slovenia, “high corporate over- indebtedness, as well as the slow pace of business environment reforms and privatisation, could act as a drag on growth,” the EBRD warned in its Regional Economic Prospects report.
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