Global debt issues plunge to 3 yr low

BASLE (SWITZERLAND), MAR 7: Net international debt issues fell to their lowest level in three years in late 1998 as investors took fright...

BASLE (SWITZERLAND), MAR 7: Net international debt issues fell to their lowest level in three years in late 1998 as investors took fright from financial crises and global capital flows dried up, the Bank for International Settlements said.

Net financing on international debt markets dropped to $ 75 billion in the fourth quarter from $ 126 billion in the third quarter, the BIS said in its latest quarterly report released to media before publication on Monday.The Basle-based BIS, which acts as a central bank for central banks, said world markets were shaken by Russia’s crisis and the near-collapse of the US hedge fund Long Term Capital Management (LTCM). Russia’s debt moratorium in August led to a flight to safety and liquidity which reached a climax in October, as benchmark yields and equity prices fell while credit spreads widened. Massive unwinding of leveraged borrowing and the near-collapse of LTCM "added to price swings and further contributed to a drying-up of liquidity in a wide range of markets andinstruments," the BIS said.

Although the situation appeared to be calming down, there were still concerns about stability in Brazil late last year. "This contrasted with the continuing euphoria in equity markets in Europe and United States, despite repeated official warnings of a growing disconnection between price levels and fundamentals," the BIS said. Debt issued by developing countries fell to its lowest level since early 1995 at the height of the Mexican financial crisis. Syndicated lending fell by 16 per cent in the fourth quarter to $189.5 billion. "In particular, there was a near-halving of facilities arranged for emerging-market names," the BIS said. Data showed credit facility announcements to developing countries fell to $9.9 billion from $18.2 billion in the period. Detailed information published for the third quarter also showed huge adjustments were already underway then.

The BIS said "banks retreated massively from emerging-market economies and sharply cut back new loans to non-bankcustomers in the industrialised world" in that quarter. The declines of banks’ outstanding claims on developing countries, at $35 billion including Eastern Europe, "underline the scale of the credit squeeze faced by the these countries" in the wake of Russia’s debt moratorium, declared on August 17.

Hedge funds were affected by the general retrenchment. The BIS noted credit lines to some US entities and Caribbean centres where some hedge funds are located were not renewed in the third quarter. Aside from lending, turbulence also hit foreign exchange markets in the second half of 1998. The BIS noted that investors pulled back from riskier positions in the wake of Russia’s problems. Such deleveraging by financial institutions and others was probably a factor in the increased volatility seen in the dollar/yen rate.

Indian debt issues booming

MUMBAI: The Indian capital market has become debt-dominated with institutions and corporates raising Rs 26,719 crore in the first nine months of this fiscal, asix per cent growth over the same period of the last year. Almost the entire public issue mobilisation has been through debt offerings, Prime Database said and added that first nine months witnessed a booming activity in the private placement of debt.

During the full fiscals of 1995-96, 1996-97 and 1997-98, debt mobilisations amounted to Rs 10,035 crore, Rs 18,391 crore and Rs 30,983 crore respectively, according to Prime.