Emerging Market Corporate Bonds

With faith and with risks mounting for government bonds rising in developed markets, emerging markets countries and corporations were able to issue more debt than ever before. In 2010 Chinese companies raised three times more money from bonds as they did from equities. Now many of these bonds are beginning to go bad. A similar worry is being seen with Russian bond holders
The program of the United States Federal Reserve known as QE2 had and most likely will have many unfortunate and unintended consequences. The idea behind QE2 was that it was supposed to drive US interest rates so low that investors would seek higher yields by investing in riskier assets. In this area it did accomplish its goal. With interest rates for US government and corporate bonds at all time lows, investors went looking for higher yields. No doubt the Federal Reserve thought that investors would confine their search to the United States. They were wrong. They didn’t. In a globalised world, they looked everywhere, often in all the wrong places.
In the search for yield many investors looking for good fixed income investments looked to emerging markets. The marketing men and women on Wall Street sold these products as offering strong performance, high yields and low risk. Since many emerging markets have lower debt, faster growing economies and younger more productive populations it seemed like a no brainer.
Although these arguments applied only to countries and not to companies, some financial advisors didn’t really trust emerging market governments. According to one, “I think people are probably giving emerging market governments too much credence in their ability to manage their way through potential financial crises. I would still much rather invest with high quality emerging market companies and their management than with the politicians of certain emerging market countries.”  
With such faith and with risks mounting for government bonds rising in developed markets, emerging markets countries and corporations were able to issue more debt than ever before. In 2010 they issued $151 billion dollars in dollar denominated debt, more than in any other year.
China was a particularly preferred destination for yield seeking investors. In 2010 Chinese companies raised three times more money from bonds as they did from equities. The sales continued to break records this year. Chinese corporate yuan denominated bond sales totalled over the 100 billion yuan mark ($15.2 billion) up 60% over 2010. Dollar denominated bonds did even better. Chinese companies also broke records with sales of $33 billion. Chinese real estate developers alone have sold more than $19 billion in recent years.
Now many of these bonds are beginning to go bad. Chinese property developers are some of the first to go. Many took on enormous debt to take advantage of the real estate boom. In the past month alone prices for these bonds have fallen 22 cents on the dollar as default risks rise.
In the past, Chinese state banks would sometimes step in and buy foreign bonds. For example Greentown China Holdings avoided a default in 2009 by paying off $400 million of foreign bonds. They raised money through lightly regulated Chinese trust companies. This exit strategy is probably closed. China’s banking regulator has been cracking down on trust companies loans specifically loans to Greentown.
Foreign bond holders of Greentown were lucky to receive their investments back. The investors in Asia Aluminium were not. Asia’s largest manufacturer of aluminium extruded products paid only 20 cents on the dollar for the senior bonds and only one cent on the dollar for the $800 million worth of junior bonds. An attempt by a Hong Kong bankruptcy court to liquidate the company’s assets to get a better deal failed.
The problems are not just limited to China. Some Russian bond holders are beginning to worry. This year the Russian rouble was the fourth best performer against the dollar. The combination of high yields and potential currency appreciation was irresistible. Many local Russian companies were happy to take advantage of this opportunity to issue international bonds denominated in roubles. It sounds like a good idea unless problems develop. The market is illiquid, shallow and new, so it will be more vulnerable to sell-offs than the dollar-denominated or local rouble bond markets.
The potential for trouble came in the recent example of the Bank of Moscow. The Bank of Moscow is Russia’s fifth-biggest bank whose shareholders include Goldman Sachs and Credit Suisse. VTB, the state-controlled lender and Russia’s second-largest bank recently bought 46.5% of the bank. What it found on the bank’s books caused a scandal. There was a $14 billion hole in its balance sheet and questionable loans worth billions of dollars to businesses related to Bank of Moscow’s senior managers. This was bad enough. The real problem was that not only were the Bank of Moscow’s $2 billion in foreign currency bonds placed in question, but also $8 billion of VTB’s own foreign currency bonds.

Many of the larger corporations in emerging markets are either state-owned or have close ties to the government, which may not favour bond holders. Stiffing foreigners in pursuit of domestic policy goals is a time-honoured practice.

(The writer is president of Emerging Market Strategies and can be contacted at or


‘Secret documents must be reviewed and made available after 20 years’

Wajahat Habibullah, former CIC says official secrets have no place in democracy


“A democracy is no place for secrets. And RTI (Right to Information) users therefore, must focus on implementing the Act, and making the authorities more proactive in disclosing information, especially now, when the debate is going on about the reach of the Right to Information Act,” said former chief information commissioner Wajahat Habibullah. He was speaking at a seminar organised by Moneylife Foundation on 15th October at the Nehru Centre, Worli, at Mumbai.

He talked about a case where veteran journalist Kuldip Nayar had sought some documents about the interaction between Benazir Bhutto and Indian diplomats from the 1960s. The ministry of external affairs said that a junior officer had reviewed the records and ruled that the information cannot be disclosed. “The senior bureaucrats and ministers sided with him. I then ruled that a committee be set up to review such secret documents that are more than 20 years old and make them available to the public. Unfortunately, that has not happened,” he said.

Mr Habibullah said that efforts are being made by authorities to make information available online, as the department of administrative reforms and pension schemes is going to invest Rs23,000 crore for e-governance. When asked about why authorities have not disclosed information, he said that is because the law doesn’t say how to enforce it.

The current Supreme Court-Chief Information Commission tussle regarding a CIC directive has caused much anxiety to RTI activists, along with the rumours about amendment to the RTI Act. Mr Habibullah said, “I don’t think the law needs to be changed—that will dilute its powers. The Prime Minister thinks that the present Act prevents information officers from expressing their honest opinion. I think that a bureaucrat will never disclose information if he has something to hide and the PM’s fears are unfounded.”

While speaking about whether non-governmental organisations (NGOs) should be covered by RTI, he said that NGOs that are substantially funded by the government must not be exempt. He cited a hearing about disclosure of some information about a racecourse. “I believe that if some institution is set up under a law, it is subject to RTI. Such organisations are often indirectly funded by the public as they get many concessions.”

He also discussed the exemptions mentioned in the RTI Act. He said that first information reports (FIRs) can also be accessed by RTI, and such disclosure cannot be said to impede investigation. However, the concept of ‘privacy’ must be discussed, because there is a demand to cover public-private partnerships (PPPs); while on the other hand, Parliament is about to introduce a Bill on privacy in the next session.

Mr Habibullah said that public authorities have taken advantage of the low compensations and penalties that have been levied against errant PIOs (Public Information Officers). “They just file a case in order to get away with delays. The penalty course must be more forcefully used,” he said. When asked about whether housing societies come under RTI, he said that if contradictory opinions exist about the issue, it reveals that the law needs clarity.

In reply to a question, he also said that an RTI user can get compensation in case of harassment.

Anil Divan, senior advocate at the Supreme Court and current president of the Bar Association of India, who was Mr Habibullah’s co-panellist, said that the RTI Act must be used to expose corruption.

He said, “Persons who hold Constitutional positions are immune from Executive and political pressure, but the agencies which are in charge of investigating cases or vigilant bodies are governed by the Executive. An independent investigation agency which will be at par with the Supreme Court or Election Commission is necessary to act on the cases on corruption.”

Mr Divan shared his views on the current RTI-Judiciary tussle. He recounted many rulings and incidents that have come up in relation to disclosure of information by the Judiciary He said, “Judiciary is a powerful institution, and it can check the powers of the government. It is thus expected that the Judiciary itself should set an example and be pro-RTI.”



P M Ravindran

6 years ago

And wait a minute! Though I was not at all interested in hearing Wajahat, I was curious to hear the advocate and so clicked on the video. But it is not available! So too at



In Reply to P M Ravindran 6 years ago

Dear Sir,
Sorry for the link. The link was referring only to one video of Mr Habibullah, which later was clubbed with other two videos. Therefore it was showing an error. However, it is now rectified. You can click below the arcticle header of click on this link

P M Ravindran

In Reply to MDT 6 years ago

Thanks! But as I stated earlier totally disinterested in hearing prostitutes talking of chastity. So skipped the Wajahat talks, went for Anil Diwan. But I wish the lawyer walked his talk. If only he could get some of the clerks in the DoPT and the ICs in the CIC convicted for treason!

P M Ravindran

6 years ago

And about the judiciary and RTI, the less said the better. Of course the issue of judges assets is notorious. But even in that case what has never been reported is that the CIC did not enforce the law which required the then CJI, K G Balakrishnan, being slapped with a penalty of Rs 25,000 for denying information as the deemed PIO!

And overall, the courts have introduced exorbitant fees an cost and even cost for 1st appeal which is strictly a free opportunity given to the head or other superior officer of a public authority to correct the mistakes of its subordinate employee who is the PIO.

P M Ravindran

6 years ago

Wajahat Habibulla, as the first Chief Information Commissioner of the country is in a very big way responsible for subverting the law. I can bet that his correct decisions as the CIC for 5 long years can be counted on one's finger tips.

For a petition I had submitted to the President of India to remove him from office please see my blog at

Striking workers of SPIL, Suzuki Motorcycle vacate plants

Taking a tough stand, the Haryana government on Thursday declared the strike by the workers at the three entities of Suzuki Motor Corporation in India illegal and initiated process to cancel registrations of unions at SPIL and SMIPL

Manesar: The workers on strike at Suzuki Powertrain India (SPIL) and Suzuki Motorcycle India Pvt Ltd (SMIPL) vacated factory premises on Saturday morning, following an order from the Haryana government, reports PTI.

The workers at the two companies have been on strike since 7th October in support of their colleagues who have struck work at Maruti Suzuki India’s (MSI) Manesar plant in Gurgaon district in Haryana.

“We have decided to vacate the plant as per the government order but we will continue our strike,” SMI Employees Union president Anil Kumar told PTI.

Similarly, workers at SPIL are leaving the factory which they have occupied since 7th October.

“We are vacating the plant premises under compulsion as police have threatened action but we will continue to be on strike outside the plant,” SPI Employees Union president Sube Singh Yadav said.

Taking a tough stand, the Haryana government on Thursday declared the strike by the workers at the three entities of Suzuki Motor Corporation in India illegal and initiated process to cancel registrations of unions at SPIL and SMIPL.

On Friday evening, the striking workers of MSI’s Manesar plant had vacated the premises, following an order from the Punjab and Haryana High Court.

The workers of the country’s largest car-maker have been on strike demanding the reinstatement of about 1,200 casual workers.

They are also demanding that 44 permanent workers, who have been suspended after a settlement agreement was signed on 1st October to end a 33-day-long standoff, must also be taken back.

On Friday, MSI had sacked 25 more workers at its Manesar plant. The firm on 9th October had dismissed 10 workers and five trainees, while another 10 were suspended.

Meanwhile, the company said there was no production at the Manesar plant.

The main plant at Gurgaon is also shut as part of a two-day closure due to constraints of engines and transmission supply from SPIL.


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