S&P predicts competition for liquidity to become tougher in next 2 years

S&P Global Ratings forecasts that issuer competition for liquidity will be fierce in the next two years, Report informs.

Amid currently high interest rates across the globe, lower-rated emerging markets (EM) issuers will likely be disadvantaged as investors will demand additional returns to compensate for the higher country risk premia than those in advanced economies.

"Speculative-grade maturities are manageable in 2024, at 17.6% of the total debt coming due, but will be increasing significantly in 2025 and 2026, reaching 24.5% and 31.5%, respectively.

It is highly unlikely that issuers will wait until 2025 to refinance, and they will probably tap the market in 2024 with interest rates still high. These conditions could be unsustainable for many issuers, leading to defaults and bankruptcies," reads the S&P study.

S&P notes that sectors with the largest maturities coming due are financial institutions, oil and gas, homebuilders, real estate and telecommunications. "Sectors highly dependent on leverage like real estate, oil and gas, utilities, and telecommunications will suffer the most during times of high interest rates. "

According to S&P, during the pandemic, most issuers took advantage of the highly accommodative financing conditions to issue debt, strengthen their liquidity profile, and extend their maturity schedule. Hence, maturities have been very manageable in recent years. However, global maturities are building up with considerable peaks coming in 2025 (see chart 8). In the case of EMs, maturities are higher in 2024 than in 2023, and increase further in 2026 (see chart 9). Out of the 18 key emerging economies we follow, the largest maturities will come due for China in 2024 and 2025, with $64 billion and $53 billion coming due in those years, respectively.