The rapid increase in debts issued by offshore subsidiaries (DIBOS) in emerging economies does not represent a significant systemic vulnerability, but rather a potential risk factor for individual issuers, a Moody’s Investors Service report said.
“The significant depreciation of some EM currencies, forecasts for prolonged muted growth and an expected tightening of US monetary policy imply that debt issued by offshore subsidiaries, which is typically issued in foreign currency and owned by foreign investors, may become more expensive to service and refinance,” said Marie Diron, Senior Vice-President at Moody’s.
The report said that at the end of 2014, there were USD 800 billion of developing countries’ bonds outstanding issued by offshore subsidiaries — some 2.5 times five years earlier.
China, India, Russia, Brazil and South Africa account for 85 per cent of such bonds by developing countries, it added.
India, Russia and Brazil, which are among the top 10 bond issuers through offshore subsidiaries, account for more than 70 per cent of total issuance of such debt in the past five years, the report added.