Dollar’s Surge Pummels Companies in Emerging Markets
From Brazil to Thailand, Firms That Sold Bonds in Dollars Now Face Steep, Even Staggering Costs
ByIan Talley and Anjani Trivedi
The stronger dollar also pushes the cost of new borrowing higher. Prices for bonds issued by Russia’s OAO TMK, one of the world’s largest pipe makers, that are due in 2018 are down by more than 30% since late October. Bond prices move in the opposite direction from borrowing costs.
In the U.S., the stronger dollar hurts exporters by increasing their production costs compared with foreign rivals and shrinking their non-U.S. profits when converted into dollars. The dollar’s rise makes imports more attractive to American consumers.
Top officials at the International Monetary Fund and the Bank for International Settlements, two of the world’s leading financial institutions, have warned that the exchange-rate turmoil could lead to corporate defaults and asset-price busts around the globe. Some analysts expect the IMF to lower its five-year growth forecast for emerging markets.
Brazilian sugar producer Virgolino de Oliveira SA is struggling with its debts as sugar prices fall.
Ratings firm Fitch Ratings, a unit of Hearst Corp. and Fimalac SA, warned this month that the Brazilian company will likely default in the coming months on debt that includes dollar-denominated notes. The company didn’t respond to requests for comment.
Malaysia’s state-run oil and gas company, Petroliam Nasional Bhd., or Petronas, said in its third-quarter results that the dollar’s rise against the ringgit was partly to blame for lower quarterly revenues. About 70% of the company’s debt is in U.S. dollars, and its bond yields spiked as the ringgit fell nearly 9% in the past six months.
The financial hit was bad for Malaysia’s government, which collects major revenue from oil and gas sales.
Shweta Singh, a senior economist at research firm Lombard Street Research, expects the dollar to keep climbing as the U.S. economy strengthens and emerging markets keep struggling to rev up economic growth. As a result, “the debt burdens of emerging markets will intensify,” she says.
If problems deepen, they could bruise investors who poured money into emerging markets and are still holding on to those investments. The bond-sale boom was fueled by investors who roamed the world seeking higher returns after the financial crisis, including from dollar-denominated bonds.
But overall investments in emerging markets by outsiders have grown so huge that it would be hard during a jolt for investors to sell without pushing those markets sharply lower, many analysts say.
—Nicole Hong contributed to this article.