The Debt Of Emerging Asian Firms Essay

The Debt Of Emerging Asian Firms Essay

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The article talks about the rise in the default rate of emerging Asian firms compared to the U.S. firms. According to the article, the default rate is 3.8% in the emerging corporate market over the last 12 months compared to 2.5% in U.S. It was 0.7% and 2.1% four years ago. Companies are struggling to generate enough cash to pay off their debts. The main reason for the rise in debt is due to global investors who are requiring higher returns on their investment in these companies. The emerging corporate default is expected to rise even further. The economic growth has slowed down in China. Furthermore, the borrowing costs for companies is on rise as investors are leaning towards less risky U.S. based bonds. They are hoping that the Federal Reserve will raise the rates. Kaisa Holdings is a Chinese property developers that missed a payments on its U.S. bonds. The company is going under the restructuring process of its debt. There was a Chinese coal- mining company named Hidili Industry which also missed a payment of $182.80 million U.S. dollar bonds. There are companies that are paying the cost of their overly optimistic overseas expansions. Back in 2011, Thailand based steel manufacturer Sahavariya Steel Industries acquired Teesside Cast Products by taking $1 billion in debt. The company failed to manage the debt it accrued.
There were many topics touched by this article that were covered in the class. For example, the cost of capital is one them. The companies may have not analyzed thoroughly the cost of raising the capital for their projects. Investors require higher rate of return when they are investing in a riskier firms. This in turn raise the cost of borrowing for the companies that are risky. Based on this article, it c...


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...ed with the company defaulting on their bond payments. On the other hand, companies with low credit ratings have the challenge to attract the potential investors. Therefore, they have to increase the interest or discount rate on their bonds to raise capital. This will help them raise the capital needed, but the cost of capital will also increase. Investors require high rate of return because of the risk associated with firm’s ability to pay the investors. Therefore, it is essential for a firm to thrive to keep the credit rating in good standing as it will help the firm to sell its bonds at a low discount rate due to less risk of defaulting on the payments compared to companies that have a low rating.
Cherney, M. (2015, Nov 24). Vodafone postpones its bond sale in the U.S. Wall Street Journal Retrieved from http://search.proquest.com/docview/1735567452?accountid=13013

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