Emerging Market Re-Defaulters' Business Overhaul Plans May Be Falling Short

In 2023, roughly 33% of emerging market (EM) defaults occurred among companies that had previously defaulted. In 2024 year to date, that percentage rose to 60%. (We define as re-defaulter an issuer which defaulted more than once. The count of defaults for this analysis starts in January 2008.)

The proportion of re-defaulters was highest in Latin America. Reasons for that aren't necessarily owed to country risks but perhaps more due to fewer financing options for distressed issuers that opted to launching debt exchanges in order to avoid grueling bankruptcy processes.

Re-defaulters generally exhibit low economic value added and EBITDA interest coverages (signaling business underperformance), as well as liquidity strains. These factors cause price discounts on its bonds.

In the majority of cases, re-defaulters perform debt exchanges to gain time to turn around their operations, but conditions don't improve as much or as fast as needed. As a result, profitability of re-defaulters doesn't pick up after the first default.

Blurring Long-Term Outlook

In our June economic outlook,we kept our general macroeconomic baseline largely unchanged,and we continue to expect the 2024 GDP growth to be stronger than in 2023 across most emerging markets (EMs). However, in several economies, policy-related risks have risen following elections that are generating uncertainty over reforms, fiscal trajectories, and institutional frameworks. Trade is seento be improving, particularly inEM EMEA and LatAm.However, further improvement remains highly vulnerable to setbacks.

Moreover, we observe a slowdown in long-term GDP growthacross some EMs, mostly because of slower labor productivity and fixed investment. In an environment of high interest rates, EM Asian economies with higher domestic savings may be better positioned to finance investments and boost long-term growth prospects, thanLatAm and EM EMEA. The pace of long-term GDP growth plays an important role in our sovereign ratings.

Food inflation has been moderating in the past 12 months, but at an uneven pace across EMs. Despite some moderation, prices for several food commodities remain above pre-2022 peaks,with economies in Sub-Saharan Africa and the Middle East as the most affected.

Financing conditions showed some regional discrepancy in terms of benchmark yield trajectories and bond market activity. Issuance was particularly strong in Hungary, Malaysia, Thailand, and Turkiye, while disappointing in Mexico and Brazil. Historically low corporate spreads keep buoying speculative grade issuance.

Assessing Brazil's Potential Path To Investment Grade

In our opinion, Brazil regaining an investment-grade rating will depend to a large extent on the political commitment to economic reforms to achieve improved fiscal consolidation and economic growth.

Brazil has a weaker fiscal position and economic growth than most emerging market peers, which constrain the rating at 'BB', two notches below investment grade.

We think an improvement of the country's fiscal dynamics would in turn boost financial market conditions and strengthen GDP growth potential.

GCC Banks' Climate Transition Journey Has Only Just Begun

In this FAQ, S&P Global Ratings addresses questions from investors on the potential effects of climate transition risks on banks in the Gulf Cooperation Council (GCC) region.

We think that these risks are complex, multidimensional, and nonlinear, and that they will evolve over a very long period.

We reviewed rated GCC banks' exposures to sectors that are most vulnerable to climate transition risks, the banks' level of preparedness, and their status of climate risk reporting.

Paving The Way: Efficient Infrastructure Key To Emerging Asia's Growth

A marked improvement in infrastructure and logistics will support the next leg of growth for the emerging markets of Asia.

Economies can unlock higher growth rates through accelerated investment in infrastructure assets on top of infrastructure efficiency gains.

The pandemic eroded budget capacity, which will constrain public capital spending. Improving so-called soft aspects of infrastructure such as the regulatory environment can support faster economic growth.

Tech Disruption In Retail Banking: Fintechs Are Fueling Financial Inclusion In Kenya

Financial technology (fintech) accelerated financial inclusion in Kenya in the past decade and transformed the country's financial sector, even though income per capita remains low.

Telecommunication companies (telcos) have become banks' main competitors because of the mobile money services they provide.

We expect digital solutions will continue to spread across rural and urban areas, with adoption rates largely depending on accessibility and price.

Despite Kenya's patchy broadband infrastructure, the regulator's open attitude toward financial innovation encouraged the growth of fintech services