Tough times ahead for Turkish Indian firms

LONDON - Reuters

Tough times may lie ahead for Turkish and Indian companies whose decade-long foreign borrowing binge has culminated in a crash in the value of the lira and rupee, significantly increasing the burden of their dollar debt.

These two markets stand out among developing nations whose companies rushed to tap dollar financing in recent years thanks to the Fed’s high liquidity policy across the global markets.

That’s because first, both countries have witnessed an explosive rise in private sector foreign borrowing from relatively low levels, and second, the lira and rupee have been at the sharp end of this summer’s rout of emerging currencies, losing around 20 percent of their value against the dollar at one point.

They have since recovered some of those losses but counting back from 2008, both currencies have shed almost half their value against the dollar.

“Where (companies) didn’t have dollar revenues to match the debt, there will be mark-to-market losses on debt plus deterioration in debt coverage ratios,” said Ani Deshmukh, director of Asia credit research at Bank of America/Merrill Lynch.

Bond issuance levels in themselves do not look alarming - since 2007, Turkish and Indian companies have borrowed roughly $50 billion each in bonds, Thomson Reuters data shows.

But counting other debt forms such as syndicated loans and trade credits, private sector external debt in each country has quadrupled since 2004 to around $200 billion, JPMorgan said in April. In India, adding in state-run companies, external debt would amount to $390 billion, according to official data.

Worse, short-term debt - which falls due in the next 12 months - has ballooned. In India it stood at around a quarter of total external debt by March 2013, having risen a fifth from year-ago levels, while Turkish firms have grown their short-term debt levels by a third since the end of 2012.

“Even if currencies recover, the issue will not disappear. The risk is that 2-3 years down the road, some companies again face refinancing problems,” said Zsolt Papp, who helps to run 1.3 billion euros ($1.7 billion) in emerging debt at Swiss wealth manager UBP.