FINANCIALX ANDTHE DEVELOPING COUNTRIES ' November Southeast Asian crisis reduces bond volumes Loan volume remains strong Stock markets fall 9% FDI to Latin America accelerates in 1997 IMultilateral commitments up slightly t"~~~~~~ ] I _ S The Southeast Asian currency crisis contributed The average maturity and spread also fell some- to a slowdown in financial flows to developing what. Project finance volumes remained strong, countries in the third quarter. In East Asia and the and activity for the year already exceeds that of Pacific bond volumes dropped and loans held 1996. El Salvador, Guatemala, Estonia, and India steady, while equity issues fell on steep declines in received investment grade ratings. Stock mar- stock market indexes. Flows to Latin America kets fell 9% in the third quarter as the Asia index remained high, while bond and loan volumes to plummeted 29% and most other markets rose. Eastern Europe fell off from the record highs in The volume of new equity issues was unchanged the second quarter. Bond issues fell by $5 billion, in the third quarter. Multilateral commitments of to $30 billion. East Asian bond volumes halved, official flows rose slightly in the third quarter, with while Latin American issues continued to climb. World Bank commitments falling from the sea- Average spreads were stable but maturities length- sonal high in the second quarter. This quarter's ened to more than 10 years (from 7 years in the financial brief asks whether financial sector weak- second quarter). Preliminary estimates show a $5 nesses are undermining the East Asian economic billion drop in loan commitments, to $35 billion. miracle. International lending and capital markets 6 Bonds 6 BOND VOLUMES FALL 6 EAST ASIAN BOND VOLUMES HALVED Private companies issue from Indonesia. Philippines development bank issues 6-year bonds. Thailand returns to bond markets. Issues from China decline. 7 INDIA IS THE ONLY ISSUER FROM SOUTH ASIA 7 SOUTH AFRICA IS THE ONLY ISSUER FROM SUB-SAHARAN AFRiCA FOR THE YEAR 7 BOND VOLUMES DECLINE IN EUROPE AND CENTRAL ASIA Russian bond volumes are largest in region. Croatia debuts in deutsche mark sector. Greece diversifies borrowings. Turkish issues meet with strong demand. Lithuania places first public offer- ing in eurobond market. Kazakhstan issues second eurobond. Other issues. 8 BOND VOLUME FROM LATIN AMERICA CONTINUES TO CLIMB Argentina issues $6 billion. Venezuela issues huge bond. Brazilian private sector issues. Bond vol- umes from Mexico fall. Uruguay issues global bond. Chile, Guatemala, and Panama borrow. 10 MIDDLE EAST AND NORTH AFRICA HAS FEW NEW ISSUES 11 AVERAGE SPREAD IS STABLE BUT AVERAGE MATURITY LENGTHENS IN THIRD QUARTER 11 SHARES OF FIXED-RATE AND DOLLAR-DENOMINATED ISSUES RISE 12 Commercial bank loans 12 SECOND QUARTER LOAN VOLUME REVISED UPWARD 12 LOAN VOLUMES REMAIN STRONG IN THIRD QUARTER 12 LOANS TO EAST ASIA AND THE PACIFIC ARE STABLE IN THIRD QUARTER China's public sector borrows. Loans to Indonesia decline. Loan volumes to Malaysia rise. Loans to the Philippines decline. Thai private sector borrows. Vietnam's public sector borrows. Financial Flows and the Developing Countries Contents and Summary 13 SOUTH ASIA BORROWS $1.7 BIs ION India accounts for most of the region's borrowing. Public sectors from Pakistan, Sri Lanka borrow. 13 SOUTH AFRICA INCREASES BORROWING 13 LOANS TO EUROPE AND CENTRAL ASIA DROP IN THIRD QUARTER Turkey is the region's largest borrower. Poland's private sector borrows. Lending to Russia and the Czech Republic declines. Lending to Slovakia increases. Croatian borrowers raise $300 mil- lion. Other countries in the region raise small amounts. 14 LOAN VOLUMES TO LATIN AMERICA AND THE CARIBBEAN REMAIN HIGH Mexico is largest borrower from the region. Private sector dominates Brazilian borrowing. Loans to Argentina total $1.8 billion. Private sector accounts for 60% of loans to Chile. Colombia raises $600 million. 15 LENDING TO MIDDLE EAST AND NORTH AFRICA IS UP IN THIRD QUARTER 15 AVERAGE MATURITY, SPREAD IN LOAN MARKET DECLINE SLIGHTLY 15 DOLLAR CONTINUES TO DOMINATE SYNDICATED LENDING 15 PROJECT FINANCE VOLUMES FOR SECOND QUARTER REVISED UPWARD 16 PROJECT FINANCE ACTIVITY REMAINS STRONG IN THIRD QUARTER China borrows for first BOT project. Indonesia borrows for two projects. India borrows for telecom- munications. Ghana's mining sector borrows. South African pipeline company borrows. Telecom- munications companies from Poland borrow. Utility companies from Slovakia enter market. IFC helps companies in Brazil and Jamaica secure funding. Chilean utility enters market. Mexican telecommunications company borrows. Guarantees facilitate gas project loan in Trinidad and Tobago. Venezuelan borrowers raise $565 million. Firms from Lebanon, Saudi Arabia borrow. 1 8 Market creditworthiness 18 COSTA RICA, EL SALVADOR, GUATEMALA, ECUADOR, AND ESTONIA ASSIGNED RATINGS S&P awards a BB rating to Costa Rica's debt. Moody's awards ratings to debt of El Salvador, Guatemala, and Ecuador. Moody's and ICBA rate Estonia's debt. Duff and Phelps rates India investment grade. 19 THAILAND DOWNGRADED, KAZAKHSTAN UPGRADED Crisis in Thailand results in downgrade. Kazakhstan receives upgrade. Equity portfolio and foreign direct investment 19 Emerging stock markets 19 IFC's INVESTABLE COMPOSITE INDEX (IFCI) DROPS 9% IN THIRD QUARTER 19 ASIAN MARKETS POST SHARP DECLINES Southeast Asian markets suffer steep declines. China's market rises in third quarter. 20 LATIN AMERICAN MARKETS POST 4% INCREASE 20 MOST STOCK MARKETS IN EUROPE, THE MIDDLE EAST, AND AFRICA INCREASE IN THIRD QUARTER Russia continues to perform strongly. Kazakhstan launches the country's first official stock mar- ket. Hungarian market rises. Demand for Lebanese securities may increase. South African market index hits record high. 21 New equities 21 VOLUME OF NEW EQUITY ISSUES INCREASES SLIGHTLY IN THIRD QUARTER November 1997 Contents and Summary 21 ISSUES FROM ASIA INCREASE SLIGHTLY IN THIRD QUARTER China accounts for about one-quarter of developing country issues. Indonesian company issues. Sri Lanka issues largest international offering to date. 21 LATIN AMERICA RAISES $2.5 BILLION IN THIRD QUARTER Brazilian utility issues. Mexico issues its largest offering since the peso devaluation. Argentine energy group raises $1 billion. Venezuelan companies issue new equity. 22 OTHER COUNTRIES ACTIVE IN iNTERNATIONAL ISSUES Egypt raises $94 million through GDRs. Kazakhstan company taps international capital market. Poland raises $410 million. Turkish company issues. South African offering attracts investors. 23 FUNDS LAUNCHED TO INVEST IN UKRAINE, KAZAKHSTAN 23 Foreign direct investment and privatization 23 FDI TO LATIN AMERICA PICKS Up IN 1997 23 SPANISH UTILITY INCREASES ITS PRESENCE IN LATIN AMERICA 23 VIETNAM SPEEDS UP LICENSING 23 JOINT VENTURE ASSET MANAGEMENT COMPANY TO BE LAUNCHED IN CHINA 23 JAPANESE SHIPBUILDING COMPANY TO INVEST IN CHINA 23 FOREIGN INVESTORS INCREASE INTEREST IN INDIA 24 KOREAN COMPANY TO INVEST IN ALGERIA 24 PRIVATIZATION PROGRAMS CONTINUE IN DEVELOPING AND TRANSITION ECONOMIES Brazil, Colombia, Mexico, Bolivia, Russia, Kazakhstan, Morocco, Bulgaria, C6te d'lvoire, Uganda, Tanzania, Senegal, Zimbabwe, Zambia, Pakistan, and Sri Lanka highlighted. Official flows 26 Multilateral flows 26 MULTTLATERAL COMMITMENTS RISE SLIGHTLY IN THIRD QUARTER 26 WORLD BANK COMMITMENTS DECLINE 26 COMMITMENTS BY OTHER MULTILATERALS INCREASE 26 Bilateral ODA and export credits 26 US SENATE APPROVES INCREASE IN AID 26 CONSULTATIVE GROUP PLEDGES $5.3 BILLION IN ASSISTANCE TO INDONESIA 27 EXPORT-IMPORT BANK OF JAPAN LENDS TO COMMERCIAL BANK IN ARGENTINA 27 US EXPORT-IMPORT BANK APPROVES PROJECT FINANCING IN MOROCCO 27 UK ANNOUNCES DEBT INITIATTVE TO ASSIST POORER COMMONWEALTH COUNTRIES Debt relief update 27 Official creditors 27 RUSSiA ADMITFED AS MEMBER OF PAMS CLUB 27 Commercial bank creditors f Financial Flows and the Developing Countries * Contents and Summary| Financial brief: Are financial sector weaknesses undermining the East Asian miracle? East Asia is experiencing turbulence in its financial markets. Recent events remind us that East Asia's success story is not the result of a "miracle" but of a determination to build solid foundations for sus- tainable growth. If macroeconomic and financial management is prudent and countries adopt the struc- tural measures that enhance the competitiveness of their economy, there is every reason to believe that East Asia will be able to ride out the inevitable bumps on the road to a promising new century. Statistical appendix 30 World Bank commitments * 31 New bond issues * 33 New loan issues * 35 New equity issues * 37 Bank and trade-related nonbank claims * 38 Commercial bank claims on developing coun- tries * 39 Commercial bank claims on developing countries, by country of origin * 43 Maturities of bank claims on developing countries * 44 Funds raised on international capital markets * 45 Sec- ondary market debt (bid) prices * 46 Emerging stock markets * 47 Country groups Note: Tables on external debt, aggregate long-term resource flows, and foreign direct investment flows are published only as data are updated. November 1997 Bonds about $4 billion in the third (figure 1). About three-quarters of the region's issues came from Bond volumes fall the private sector and the remainder from the nonsovereign public sector. Sovereign borrowers International bond issues by developing countries were absent from the markets. The countries dropped to $30 billion in the third quarter from most directly affected by the currency crisis $35 billion in the second (table 1). SoutheastAsia's (Indonesia, Malaysia, Philippines, and Thailand) Bond issues from currency crisis and the traditionally slow July- had only a few issues, largely from offshore East Asia and the August period were to blame. Bond issues from companies. East Asia and the Pacific fell by half, with the tur- Pacific fell by half moil in currency markets discouraging investors PRIVATE COMPANIES ISSUE FROM INDONESIA. and forcing many issuers to wait for more favorable The bulk of Indonesian issues were from private times. Issues from Europe and Central Asia fell by offshore companies. Pindo Deli Finance Mauri- a third from the record-breaking volumes in the tius raised $750 million in tranches of 5, 10, 20, second quarter. By contrast, issues from Latin and 30 years. The launch spreads varied between America and the Caribbean continued to grow 425 basis points for the 5-year issue to 550 basis strongly, reaching $20 billion (about 45% of the points for the 30-year issue. Most of this invest- total in 1997). The private sector's share in devel- ment came from the US. oping country bond volume increased from about 30% in the second quarter to about 40% in the PHILIPPINES DEVELOPMENT BANK ISSUES 6-YEAR third, due primarily due to corporate issuers from BOND. In an effort to establish an offshore market, Latin America and the Caribbean. the state-owned Development Bank of the Philip- pines issued a 20 billion yen ($169 million) 6-year East Asian bond volumes halved bond in early August. The margin paid was 110 basis points over the yen LIBOR. Japanese credit Bond issues from East Asia and the Pacific fell associations and regional financial institutions from a high of $8 billion in the second quarter to were the biggest investors. TABLE I Bond issues by type of borrower US$ma;;0nS 1997 1997 ~THAILAND RETURNS TO BOND MARKETS. The US5$ mill/ont 1997 /997 1995 /996 Q2 Q3 Industrial Finance Corporation of Thailand All developing countries 47,749 74,630 34,819 30,130 (IFCT), a partly state-owned institution, raised Pri vte 15,473 22,933 10,879 11,575 $500 million in late July (following the devalua- Sub-Saharan Africa 6,56 7,72 4,523 3,015 tion of the baht). The issue was placed in two South Asia 520 672 311 751 tranches, one with a 10-year maturity (and a 7- Europe and Central Asia 541 559 994 1,003 Latin America and Caribbean 7,746 3,231 4,636 6,805 year put opton) and one with a 5-year maturity, Middle East and North Africa 50 160 375 0 with an average spread of 116 basis points over Sovereign 24,253 41,166 17,87 1 3,446 US Treasury bonds and an additional spread Sub-Saharan Africa 496 782 343 0 payable if the corporation is downgraded. InJan- East Asia and the Pacific 569 3,459 1,562 0 South Asia 0 150 300 0 uary the IFCT had paid a spread of just 90 basis Europe and Central Asia 10,204 9,003 4,965 2,448 ts. In Septe Latin America and Caribbean 12,105 27,345 10,453 10,491 Middle East and North Africa 879 428 248 507 Exploration & Production Public Co. Ltd.- Other public 8,023 10,530 6,069 5,109 issued a bond, the second one from Thailand Sub-Saharan Africa 396 140 34 157 since the devaluation. East Asia and the Pacific 3,083 4,241 2,030 1,136 South Asia | 262 220 0 400 Europe and Central Asia. 1,501 230 594 850 ISSUES FROM CHINA DECLINE. Bond issues from Latin America and Caribbean 2,731 5,449 3,312 2,465 Middle East and North Africa 1 50 250 /00 100 China totaled $657 million, a significant drop Source: Euromoney Bondware and World Bank. from the $2.9 billion issued in the second quarter. * FinancialFlows and the Developing Countries International lending and capital markets | China International Trust and Investment Corp. year bonds backed by the government. Eskom, issued a DM 200 million ($112 million), 5-year Africa's largest electricity provider, issued 30- and bond at a 62 basis point spread over the German 35-year zero coupon eurorand bonds worth $80 risk-free rate. million (on a presentvalue basis). The bonds were not only the first zero coupon bonds from South India is the only issuer from South Asia Africa but also the longest term and the cheapest in the currency. The Development Bank of South Bond issues from India rose to $1.1 billion, the Africa also issued fixed-rate zero coupon bonds Bond issues from highest quarterly total in 1997. The high volume backed by the government. India rose to $1. I resulted in part from the government's decision to eliminate restrictions on bond issuance for Bond volumes decline in Europe and billion, the high- top-tier credit companies, so long as the maturity Central Asia est quarterly is at least 10 years. Reliance Industries Ltd. bor- total in 1997 rowed £150 million ($251 million), India's first BondissuesfromEuropeandCentralAsiafellfrom sterling-denominated bond. The 10-year issue a record $6.6 billion in the second quarter to $4.3 was priced at 165 basis points over Gilts. The Tata billion in the third, with issues from the Russian group of companies issued bonds worth $500 and Turkish governments falling considerably. million, with maturities ranging from 10 to 20 years. Public issues came from Indian Railway RUSSIAN BOND VOLUMES ARE LARGEST IN Finance Corp., which issued a 7-year, floating- REGION. Russia borrowed $1.3 billion as activity rate note, and from two other industrial finance from the nonsovereign public sector and private companies. sector increased strongly. Almost all the private sector players were finance companies, and the South Africa is the only issuer from average terms were 425 basis points for 3-year Sub-Saharan Africa for the year maturities (table 2). AO Siberian Oil Company issued a 3-year floating-rate note for $150 million South Africa issued $157 million in eurorand at 400 basis points over the 3-month LIBOR. The bonds in the third quarter. Transnet Ltd., south- success of the issues, which were oversubscribed, ern Africa's largest transport company, issued 7- may ease the way for other Russian corporate FIGURE I Monthly bond issues from East Asia FIGURE 2 Annual bond issues from Russia for and the Pacific, 1997 1996 and 1997 Billions of dollars Billions of dollars 5.6 2.6 2.1 Average July August September 1996 January-September 1997 January-july Source: Euromoney Bondware and World Bank. Source: Euromoney Bondware and World Bank. November 1997 International lending and capital markets TABLE 2 Spreads and maturities on Russian year issue since its 1994 downgrade to below bonds, 1997 investment grade. Sovereign Subsovereign' Privote Spread (basis points) 375 302 425 LiTHUANIA PLACES FIRST PUBUC OFFERING IN Maturity (years) 10 4 3 aReestoucrity(yesan municipalities. EUROBOND MARKET. Lithuania's $200 million, 5- a. Refers to cities and municipalifbes. Source: Euromoney Bondware and World Bank. year fixed-rate issue was priced at a 105 basis point spread over US Treasury bonds. Primary place- Bond volume issues. The Nizhniy Novgorod region borrowed ment was with US investors, with the remainder from Latin $100 million for 5 years at a spread of 280 basis distributed almost equally between European and points over US Treasury bonds. The spread imme- Asian investors. America and diately tightened in secondary market, trading to the Caribbean about 270 basis points. KAzAKHSTAN ISSUES SECOND EUROBOND. Kaza- CROATIA DEBUTS IN DEUTSCHE MARK SECTOR. khstan issued its second eurobond, a $350 mil- reached $20 Croatia brought an inaugural DM 300 million lion, 5-year fixed-rate issue with a 245 basis point billion ($173 million) bond to the market. One of the spread over US Treasury bonds. Kazakhstan's pre- issue's objectives was to set a benchmark for bond vious issue was priced at 350 basis points over pricing in the deutsche mark market, in prepara- Treasuries. tion for European Monetary Union. OTHER ISSUES. Private banks in Estonia raised GREECE DIVERSIFIES BORROWINGS. The gov- $48 million in the deutsche mark market, and a emnment of Greece took advantage of recent private bank from Latvia borrowed $30 million improvements in its credit rating from Moody's to through a floating rate note. issue a 7-year note for 25 billion pesetas ($169 mil- lion) in the Spanish Matador market and an inau- Bond volume from Latin America gural 100 billion yen ($856 million) euroyen issue continues to climb in two tranches of 10- and 20-year maturities. Bond volume from Latin America and the TURPISH ISSUES MEET WITH STRONG DEMAND. Caribbean reached $20 billion, slightly more than Most issues from Turkey during the third quarter in the second quarter. So far this year issues have came from the public sector. The government reached $50 billion, or $4 billion more than in all borrowed $600 million at a spread of 375 basis of 1996. Government issuance of $10 billion was points, its largest dollar bond ever and the first 10- about the same as in the second quarter, but vol- FGURE 3 Investor profile for Europe and FIGURE41 Investor profile for Latin America Central Asia bond issues, 1 997Q3 and the Caribbean bond issues, _ 1997Q3 Other Other Other 3% Ohr 6 Europe 17%usErp 34% 1 8 % S UK \ _ _ 40/o U 50% 17% 0 ;_Germony\ 17%an 14% Germony 7 22% 8% Note: Based on investor composition in the primary market. Note: Based on investor composition in the primary market. Source: Euromoney Bondware and World Bank. Source: Euromoney Bondware and Word Bank. a Financial Flows and the Developing Count,ries * International lending and capital markets umes increased for private borrowers from TABLE 3 Spreads and maturities on Argentine Argentina, Brazil, and Chile. bonds, 1997 january August September ARGENTINA ISSUES $6 BILLION. The govern- Spread (basis points) 463 185 305 Maturity (years) 20 6.5 30 ment accounted for 70% of borrowing in Source: Euromoney Bondware and World Bank. Argentina for the quarter. The government swapped its par ($1.8 billion), discount ($176 mil- cially banks (figure 7). The government borrowed lion), and floating-rate ($305 million) Brady £150 million for 10 years at a spread of 275 basis Issues from bonds for $2.2 billion in 30-year unsecured global points, its first issue in the sterling sector. Mei fell t bonds, priced at 305 basis points over US Trea- Argentina and Mexico are the only other bor- suries (figure 5). The government also issued a rowers from the region in the sterling sector. $3.1 billion, from lira-denominated bond in which coupon pay- Issues in the nonsovereign public sector came $6.2 billion in the ments and the interest rate decline at later matu- from two blue-chip companies-Petrobras and rities. Perez Company SA issued a $400 million, BNDES. second quarter 10-year bond at a spread of 187 basis points. The company's bonds now have a higher rating than BOND VOLUMES FROM MEXICO FALL. Issues the country's sovereign bond rating (figure 6). from Mexico fell to $3.1 billion, from $6.2 billion in the second quarter. The drop was due primar- VENEZUELA ISSUES HUGE BOND. In one of the ily to a sharp decline in government borrowing, largest transactions ever, Venezuela issued a $4 although the government issued its first deutsche billion 30-year bond priced at 325 basis points mark and ECU bonds in almost 5 years. The ECU over US Treasuries to exchange a portion of its deal came to the market in September after being outstanding Brady bonds. Investor demand for postponed because of the turbulent market con- the issue was reportedly quite strong, enabling the ditions. In a two-tranche deal of 10 and 30 years, bond to be $3 billion larger than originally Petroleos Mexicanos raised $1 billion at a spread planned. of 250 basis points and 282 basis points over US Treasuries. BRAZILIAN PRIVATE SECrOR ISSUES. Brazilian issues totaled $4.2 billion, with more than three- URUGUAY ISSUES GLOBAL BOND. Uruguay bor- quarters originating with the private sector, espe- rowed $300 million in its first global bond. The 30- FICURE S Spreads on Brady bond swaps, FIGURE 6 Spreads on sovereign and private Latin America bonds, Argentina Basis points Basis points 552 200 187 395 325 305 250 II __ ___ Sovereign Perez Company SA (BB) (BBB-) Brazil Mexico Venezuela Argentina Panama Note: Sovereign spreads are on Austrian schilling issues. Private bank spreads ane on US dollar issues. Source: Euromoney Bondware and World Bank. Source: Euromoney Bondware and World Bank. November 1997 International lending and capital markets FIGURE 7 Share of private banks in Latin years, priced at 90, 120, and 145 basis points over American bond issues, 1996-97 US Treasuries. Guatemala entered the interna- Percent tional bond market with a $150 million 10-year issue priced at 240 basis points over US Trea- suries. The issue was reportedly three times over- subscribed. Panama retired 26% of its Brady bonds by issuing a $700 million 30-year unse- cured global bond at a spread of 250 basis points over US Treasuries. Middle East and North Africa 9 8 has few new issues Jordan Phosphates Mines, responsible for about 2 _ one-third of Jordan's exports, issued a $100 mil- A rgentina Brzil Chile Colombia Mexico lion 5-year floating-rate note that paid investors 150 basis points over LIBOR. The Central Bank Source: Euromoney Bondware and World Bank. of Tunisia issued a 12.5 billion yen ($107 mil- year maturity was the longest on any international lion) 20-year Samurai bond. The bond's tenor bond from the country. The spread of 135 basis was the longest Tunisia has ever issued in the points over US Treasuries compares with 160 basis Japanese market. Its cost of 135 basis points over points paid by the government for 10-year funds Japanese government bonds was below the 153 in 1996. basis points the bank paid last year for a 15-year CHILE, GUATEMALA, AND PANAMA BORROW. bond. The central bank also issued two dollar- Embotelladora Andina SA, a private Chilean denominated bonds, with spreads of 180 basis company, raised $350 million through a 3- points for 30 years and 140 basis points for 10 tranche bond with maturities of 10, 30, and 100 years. FIGURE B * Maturity profile of bond issues FIGURE 9 Type of bond issues by region, by region, 1997Q3 1997Q3 Billions of U.S. dollars Bililons of U.S. dollers Over IS years U 19.7 Floating r 19.7 11-15 years [2 Convertible E 6-10 years E Fixed rate I-5 years U 4.2 4.3 4.2 4.3 12 L0.7 1.2 0.7 Sub- East South Europe Latin Middle Sub- East South Europe Latin Middle Sahoran Asia Asia and America Eest end Sahorcn Asia Asia and America East end Africc and the Central and the North Africa end the Centrol and the North Pacific Asia Caribbean Africo Pacific Asia Caribbean Africo Source: Euromoney Bondware and World Bank. Source: Euromoney Bondware and Word Bank. E FinancialFlows and the Developing Countries * International lending and capital markets Average spread is stable but average FIGURE I0 Currency composition of developing maturity lengthens in third quarter country bond issues, 1 997Q3 The average spread paid by developing countries DM Yen in the primary bond market remained at about 250 basis points in the third quarter. The currency * N terling 5% crisis in Southeast Asia increased the spreads on the few issues from Indonesia, the Philippines, us5$ The average and Thailand. For example, an offshore issue 84% spread paid by from an Indonesian finance company carried a ' ' spread of 475 basis points on the 10-year tranche, East and South Asia developing compared with 362 basis points on a comparable DM Lira Yen --2% 8%/ 1% ECU countries in the issue earlier in the year. In Latin America average - 2% Other primary bond spreads declined by about 80 basis points. The 2% most creditworthy borrowers paid very low US$ market remained spreads-for example, China and Greece paid 85% , at about 250 less than 65 basis points. The maturity on developing country bonds in - basis points in Latin America and the Caribbean the third quarter averaged around 10.5 years, com- DM the third quarter pared with 7 years in the second quarter (figure 8). 5% About 55% of the bonds had tenors between 5 and Yen 10 years. Issues from Latin America and the Caribbean averaged about 15 years, as countries swapped Brady bonds for 30-year global bonds and US$ Other 4% 71% Chile issued a century bond. The maturity on most bonds from East Asia and the Pacific was around 7 - a East and South Asia years. That on bonds from India averaged about 11 years. Blue-chip South African companies had an Source: Euromoney Bondware and World Bank, average maturity of about 25 years. Most of the rel- and Central Asia (due to issues from Estonia, atively new borrowers from Europe and Central Greece, Latvia, Russia, and Turkey). Asia secured funds at between 3 to 5 years, although The share of issues denominated in US dollars bonds from Croatia, Greece, and Turkey had rose from 64% in the second quarter to 82%. In maturities of 7 to 12 years. In the Middle East and North Africa, Tunisia's maturity averaged around FIGURE I Sectoral composition of developing 20 years and Jordan had a issue for 5 years. country bond issues, 1 997Q3 Shares of fixed-rate and dollar- Other denominated issues rise 17% The share of fixed-rate issues rose from about 80% Energy/telecom/ 38% utilitise in the second quarter to a little over 90% in the 17% third (figure 9). Convertibles were issued by off- shore registered companies from China and Indonesia. The share of floating-rate notes in total finance 9nnl bond volume dropped from 15% in the second 25__ 9_ quarter to 8% in the third, despite the sharp rise Note: 'Other" includes utilities, agriculture, construction, transport, and other services. in the share of floating-rate notes from Europe Source: Euromoney Bondware and World Bank, November 1997 m International lending and capital markets Latin America the share of dollar-denominated is available, this figure could well be revised to bonds rose to 85% in the third quarter, up from equal or exceed the second quarter's $40 billion, 73% in the second (figure 10). Most nondollar despite the traditional lull in the markets during issues from Asia were denominated in yen or July and August. Unlike the bond market, the vol- deutsche marks, although India issued in sterling. ume of loans did not appear to have been greatly affected by the currency crisis in Southeast Asia. Commercial bank loans The $102 billion in syndicated loans recorded through the third quarter already exceeds last Second quarter loan volume year's total of $95 billion. The private sector's revised upward share in total loans recovered to 70% in the third quarter, up from 60% in the second. The estimated volume of syndicated loans to devel- oping countries for the second quarter was revised Loans to East Asia and the Pacific are upward to $40 billion from $25 billion, as reported stable in third quarter in the last issue of Financial Flows. This change reflects the availability of more comprehensive East Asia and the Pacific borrowed $10.6 billion in information, as reports on loan volumes are typi- the third quarter, about the same amount as in the cally incomplete at the end of the quarter (when second. This contrasts sharply with the bond mar- the estimates are prepared for FinancialFlows) . kets, where regional volumes dropped significantly. About three-quarters of the loan volume went to the Loan volumes remain strong private sector, whose share increased by about 10 in third quarter percentage points over the second quarter. The preliminary estimate of syndicated loans to CHINA'S PUBLIC SECTOR BORROWS. China bor- developing countries during the third quarter is rowed $3.9 billion in syndicated loans during the $35 billion (table 4). Once complete information third quarter, with public corporations account- ing for almost 70% of the total. Everbright TABLE 4 Loan issues by type of borrower Finance & Investment Co. Ltd. arranged a $1.1 bil- US$ millions 1996 1996 /997 1997 1997 lion 1-year loan. The longest tenor (18 years) wvas 1994 1995 1996 Q3 Q4 QI 02 Q3 for a $160 million loan to the State Development Al developing countries 72,780 102,911 95,385 18,750 36,242 26,411 40,305 35,353 Bank of China, to finance the purchase of equip- Private 32,110 51,075 61,850 10,987 25,682 18,845 22,912 24,133 ment for a power project. Of the 10 institutions Sub-Saharan Africa 1,022 2,606 3,921 446 517 1,011 683 806 East Asia and the Pacific 20,685 28,447 31,823 7,445 8,359 9,202 7,138 7,812 established to raise international capital for the South Asia 1,857 2,400 2,395 304 1,278 406 307 607 economic development of the provinces, 6 bor- Europe and Central Asia 1,645 5,344 6,718 1,089 3,687 1,499 2,235 3,942 rowed from the loan market in the third quarter. Latin America and Caribbean 6,434 11,621 16,515 1,669 11,654 4,521 11,070 8,369 Middle East and North Africa 468 657 477 35 187 2,206 1,480 2,597 Sovereign 10,604 7,284 4,347 915 1,631 743 1,199 841 LOANS TO INDONESIA DECLINE. Indonesia's Sub-Saharan Africa 28 411 471 375 56 14 0 0 loans dropped from $3.8 billion in the second East Asia and the Pacific 4,074 1,727 790 100 50 500 291 13 South Asia 283 361 701 182 143 30 95 107 quarter to $1.8 billion in the third. Most of the Europe and Central Asia 2,585 1,666 1,009 108 704 0 726 561 borrowing reflected the refinancing of previously Latin America and Caribbean 585 2,914 627 0 277 199 0 0 Middle East and North Africa 3,048 205 750 150 400 0 87 160 contracted debt by private corporations. The aver- Other public 30,066 44,552 29,188 6,848 8,928 6,823 16,195 10,378 age transaction was $50 million. Sub-Saharan Africa 311 2,649 1,333 349 359 76 114 1,900 East Asia and the Pacific 14,568 18,077 8,072 1,767 2,085 3,283 3,090 2,754 South Asia 2,411 3,339 4,093 720 1,323 859 1,175 985 LOAN VOLUMES TO MALA.YSIA RISE. Loans to Europe and Central Asia 6,692 6,759 7,533 2,374 1,320 1,244 8,879 1,334 Malaysia increased by more than 45%, to $1.9 bil- Latin Amerca and Caribbean 4,838 5,660 7,486 1,627 3,842 1,361 2,370 2,465 Middle Eastand NorthAfrica 1,246 8,067 671 10 0 0 567 940 lion. Private companies raised $1.9 billion, in 11 Source: Euroonney Loanware and Wore Bank. transactions, with an average size of $170 million. *Financial Flows and thet Developing Countries International lending and capital markets The national lottery operator raised $200 million poration raised $600 million (up from an original in a multicurrency facility that allowed for funds to $400 million) in trade finance. The National be made available in dollars, deutsche marks, or Thermal Power Corp. borrowed 15 billion yen yen. The largestfacility (andwith the longestmatu- ($127 million) for a 10-year loan, paying 78 basis rity) was an $840 million 10-year loan to Titan points over LIBOR. The Export-Import bank of Holdings Sdn Bhd., with the cost of borrowing India raised $50 million for 7 years at 57 basis linked to the borrower's ratio of debt to equity. points over LIBOR. Syndicated loans LOANS TO THE PHILIPPINES DECLINE. The PUBLIC SECTORS FROM PAISTAN, SRI LANKA Philippines borrowed $400 million in the third BORROW. Most of Pakistan's borrowers were pub- quarter, well below the $900 million in the sec- lic companies raising short-term funds, although Central Asia ond. The Northern Mindanao Power Corporation a private telecommunications equipment com- dropped to $5.8 borrowed $32 million for 5 years to refinance an pany secured general working capital for 5 years. existing loan. The only public sector loan was for In a two-tranche deal, the National Development billion in the third Philippine Long Distance Telephone Co., which Bank of Sri Lanka borrowed 2.3 billion yen ($20 quarter from a arranged $24 million. million) for 10 years at a margin of 85 basis points record $1 1 .8 over LIBOR. The deal was guaranteed by the gov- THAI PRIVATE SECTOR BORROWS. Private com- ernment and the Asian Development Bank; the billion in the panies in Thailand borrowed $2.4 billion in the proceeds are to be onlent to export projects. second syndicated loan market, twice the second quar- ter's amount. One of the world's largest agroin- South Africa increases borrowing dustrial conglomerates, Chareon Pokphand Feedmill Co. Ltd. obtained a $150 million 3-year Syndicated loans to Sub-Saharan Africa increased syndication. Strong demand enabled the loan to from $0.8 billion in the second quarter to $2.7 bil- be almost doubled from the initial plans. A 7.5 bil- lion in the third, with South Africa accounting for lion yen ($65 million) loan for Siam Cement Co. 90% of the total. The South African Reserve Bank Ltd. was also doubled following strong demand. came to the market with a 3-year $1.7 billion Rayong Refinery Co. Ltd.'s $1.5 billion refinanc- revolving loan priced at 30 basis points over ing, for 10 years, was priced at 105 basis points LIBOR. The rest of South Africa's borrowing was over LIBOR. The loan included provisions for primarily from the private sector, with loans aver- increases in the spread based on any deterioration aging $90 million at margins of about 35 basis in sovereign rating or leverage ratio. points. Loans to Ghana were for project financing (discussed later). Namibia's largest commercial VIETNAM'S PUBLIC SECTOR BORROWS. The pub- bank, First Bank of Namibia, came to the market lic sector accounted for most of Vietnam's bor- with a $35 million 1-year term loan, paying 50 basis rowing. Vietnam Airlines raised $15 million for 5 points over LIBOR. years, and the Vietnam National Coal Corp. raised $30 million to fund equipment. The second deal Loans to Europe and Central Asia drop was backed by coal exports. in third quarter South Asia borrows $1.7 billion Syndicated loans to Europe and Central Asia dropped to $5.8 billion in the third quarter from INDIA ACCOUNTS FOR MOST OF THE REGION'S a record $11.8 billion in the second, primarily BORROWING. India accounted for $1.4 billion of because of a sharp drop in activity from the Czech the $1.7 billion arranged for South Asia during Republic and Russia. Still, loan volumes through the third quarter. About 60 % of India's loans went the third quarter already exceed the 1996 level by to the private sector. The public Indian Oil Cor- about a third. November 1997 m International lending and capital markets TuRKEY IS THE REGION'S LARGEST BORROWER. The debut loan of Kazkommertsbank, a private Turkey borrowed $1.4 billion in the third quarter. commercial bank in Kazakhstan, was oversub- The government came to the market twice, bor- scribed and was increased from $20 million to $30 rowing in French francs ($7.2 million) and US million. The cost was 400 basis points over LIBOR dollars ($135 million). Most of the borrowing in for short-term funding. An electric utility com- the nonsovereign public sector was from banks, pany in Latvia secured $40 million through a 4- including the Export Credit Bank of Turkey. year loan. Bank Ukraina, a public commercial Latin America bank in Ukraine, paid 500 basis points over and the POLAND'S PRIVATE SECTOR BORROWS. Poland LIBOR to secure $35 million for 1 year. A private borrowed $1 billion in the syndicated loan market corporation in Uzbekistan secured $67 million Caribbean raised during the third quarter, with the private sector for trade financing. $1 1 billion in the accounting for 70% of the total. The government borrowed $105 million at 10 basis points over Loan volumes to Latin America and the third quarter LIBOR to finance relief activities related to the Caribbean remain high recent floods. Latin America and the Caribbean raised $11 bil- LENDING To RussA AND THE CZEcH REPuBLIc lion in the third quarter, following on the $13.4 DECLINES. Syndicated loans to Russia fell to $0.9 billion borrowed in the second. The total for the billion in the third quarter, down sharply from $6 first three quarters of 1997 is 25% higher than for billion in the second. More than 80% was raised all of 1996. by the banking system. Strong investor participa- tion caused many transactions to be oversub- MEXICO IS LARGEST BORROWER FROM THE scribed. Loans to the Czech Republic also fell REGION. The private sector accounted for 70% of sharply, to $0.5 billion in the third quarter (down the $4 billion borrowed by Mexico in the third from $2.5 billion in the second), with transactions quarter. The largest loan, however, was a $1 bil- from two private companies. Both loans were over- lion facility to the state-owned Petroleos Mexi- subscribed. canos, at an average cost of 50 basis points. LENDING TO SLOVAEIA INCREASES. Loans to PRIVATE SECTOR DOMINATES BRAZIIAN BOR- Slovakia increased from $0.2 billion in the second ROWING. In Brazil borrowing by the private sector quarter to $0.5 billion in the third. The govern- fell almost 50% over loans in the second quarter ment borrowed $120 million for 7 years at 57 basis but still accounted for nearly 85% of the country's points over LIBOR. $1.9 billion in loans. A private corporation, Avan- tel Comunicacoes Pessoais, borrowed $1 billion, CROATIAN BORROWERS RAISE $300 MILLION. for 8 years, paying 168 basis points over LIBOR. Kras dd, a private company in Croatia, raised $32 Investors were given a put option after 3 years. million, with the cost of borrowing linked to its financial performance and to the government's LoANS To ARGENTINA TOTAL $1.8 BILLION. All credit rating. Argentina's loans went to the private sector except a $200 million 5-year loan to Yacimientos OTHER COUNTRIES IN THE REGION RAISE SMALL Petroliferos Fiscales SA (YPF), the state-owned oil AMOUNTS. Slovenia's only transaction was a $42 company, at a margin of 95 basis points. million 7-year loan in the deutsche mark sector to a state-owned bank, at 27 basis points over LIBOR. PRIVATE SECTORACCOUNTS FOR 60% OF LOANS A private corporation in Azerbaijan borrowed TO CHILE. Syndications for Chile totaled $1.3 bil- $16 million. The loan was guaranteed by Eng- lion. Empresa Nacional del Petroleo (ENAP), the land's Exports Credit Guarantee Department. state oil and gas corporation, borrowed $150 mil- E Financial Flows and the Developing Countries * International lending and capital markets lion for 5 years, paying 22 basis points over basis points for the first half of the year to 223 basis LIBOR. points in the third quarter. Latin American bor- COLOMBIA RAISES $600 MILUON. Refinancing rowers also paid an average of 105 basis points, of debt by a private Colombian company raised with Argentina (141 basis points) and Brazil (110 $400 million. In addition, Empresa Multipropos- basis points) paying the highest and Chile paying ito Urra SA, an electric utility, raised $60 million around half the regional average. for 12 years, backed by a guarantee from the cen- tral government. Dollar continues to dominate syndicated lending Lending to Middle East and North Africa is up in third quarter More than 90% of syndicated loans to developing countries in the third quarter were denominated Syndicated loans to the Middle East and North in US dollars (figure 14). Yen deals were limited Africa rose to $3.7 billion in the third quarter, up to India, Sri Lanka, and Thailand; and borrowing from $2.1 billion in the second, with $3 billion in deutsche marks was primarily by Croatia, the going to Saudi Arabia (largely for project finance). Czech Republic, Estonia, Hungary, and Poland. An Egyptian public airline borrowed $180 million French franc loans were raised by Morocco, for 7.5 years at 72 basis points over LIBOR. A pri- Romania, and Turkey. vate bank paid 35 basis points for a $125 million loan repayable in 3 years. The loan amount was Project finance volumes for second increased from $100 million because of strong quarter revised upward investor participation. Loans for Lebanon were for project finance. From Morocco a state-owned fer- The estimated volume of loans for project finance tilizer corporation borrowed $160 million for 10 in the second quarter was revised to $6.6 billion years, andapublic electric utility raised $23 million. (table 5), up from the $4.2 billion reported in the Both transactions were in French francs. last issue of Financial Flows. Average maturity, spread in loan market FIGURE 12 Quarterly variations in average maturity on loan syndications decline slightly for developing countries, 1997 Years Syndicated loans to developing countries had an 6 M 1997QI average maturity of about 4years in the third quar- PR 1997Q2 ter, slightly below the average for the first half of 5 1997Q3 the year (figure 12). By contrast, bond issues aver- aged 10 years in the third quarter. Developing 4 countries paid an average spread of 125 basis points over the benchmark rates down slightly 3 from the average of 140 basis points during the first half of the year (figure 13). Europe and Cen-k. tral Asia borrowers paid an average of 207 basis points, the highest regional average. Russian bor- I rowers paid on average 460 basis points. But bor- rowers with higher credit ratings-such as the Czech Republic, Hungary, and Slovenia-paid All developing Sub-Saihrarn East Asiai South Europe Latin Middle East countries Africo and the Pocific Asia oind Central Americo ond North close to 50 basis points. The spread on loans to Asia and the Africai East Asia and the Pacific averaged 105 basis points, Caribbean although Indonesia's spread edged up from 163 Source: Euromoney Loanwar-e and Wadd Bank. November 1997 International lending and capital markets FIGURE 13 Spreads in primary syndications market, 1997Q3 FIGURE 4 Currency composition of loan issues, 1 997Q2 and 1 997Q3 Morgin over benchmork rate 1 997Q2 Europe and Central Asia aD Y% 600 Other 2% us Soo 9 7 460 350 209~~~~~~3 | | | | | ~~~159J 140 139 Ye IM 3% 941 9 Other 4% | ||76 69 57 44us Source: Euromoney Loanware and World Bank. East and South Asia 223 Project finance activity remains strong in third quarter Preliminary estimates indicate that project finance loans totaled $6.7 million in the third 110 quarter, about the same as in the second. Project 98 96 85 finance activity for the first three quarters totaled - _~~~~~~~~~7 about $22 billion-more than in all of 1996. Latin * y y y | | | * America and the Caribbean attracted the most Asia and the Pacific dropped sharply. Several Regional Indonesia Pakistan Malaysiai China Philippines Thailand India Asian countries plan to postpone many planned average infrastructure-related projects. Latin America and the Caribbean The share of project finance devoted to infras- 141 tructure has dropped from 1996. Infrastructure 134 projects accounted for 29% of project finance loans for the first three quarters of 1997, down 105 108 from 45% in 1996. 97 CHINA BORROWS FOR FIRST BOT PROJECT. * | | | 8 China secured funding for Laibin B, an electricity generating plant. The project is the country's first build-operate-transfer (BOT) project, as well as the first to be finaniced completely through inter- national capital markets. The sponsors of the pro- ject provided 20% of the $650 million project in Regional Argentina Venezuela Brazil Mexico Colombia Chile equity; the rest was financed in the international average debt markets. The complex financing arrange- Source: Euromoney Loanware and World Bank. ments included a $303 million 12-year tranche S FinancialFlows and the Developing Countries * International lending and capital markets TABLE 5 Project finance by region and sector Export-Import Bank cost 7 basis points over US$ millions 1997 1997 LIBOR. 1996 Q2 QL Region All developing countries 20,484 6.627 6,736 GHANA'S MINING SECTOR BORROWS. Ashanti Sub-Saharan Africa 200 123 240 Goldfields Co. Ltd. of Ghana arranged the coun- East Asia and the Pacific 13,982 1,453 713 South Asia 2,173 115 129 try's first syndicated loan on a limited recourse Europe and Central Asia 1,353 3,084 727 basis without political risk insurance or the back- Latin America and Carbbean 2,026 1,047 2,506 Middle East and North Africa 750 805 2,422 ing of a multilateral institution. The $60 million 4- Sector year loan was priced at 60 basis points over Power 5,074 964 1,050 LIBOR. In addition, the Abosso Gold Project Telecommunications 2,150 523 1,186 Transportation 427 115 313 arranged an $80 million loan. Other infrastructure 1,509 0 100 Noninfratructure 11,325 5,025 4,088 SouT AnRcAN PIPELINE COMPANY BORROWS. Source: Euromoney Loanware and World Bank. The Trans-Caledon Tunnel Authority raised $100 guaranteed by the French export credit agency million to build a pipeline for transporting water (COFACE), a $40 million 10-year standby loan from Lesotho and refinance some earlier bilateral facility, a $159 million 10-year loan, a $15 million funding. The 3-year deal was backed by the gov- maintenance bond, and an 18-year power pur- ernment and carried a margin of 32 basis points chase and fuel supply agreement. Another pro- over LIBOR. ject, to build an automotive battery production plant, was split into two tranches. A $28 million 5- TELECOMMUNICATIONS COMPANIES FROM year tranche was syndicated at a cost of 55 basis POLAND BORROW. Poland's Polska Telefonia points over LIBOR, and an $8 million 3-year Cyfrowa-Era GSM arranged $224 million in loans tranche paid 47 basis points over LIBOR. in the deutsche mark sector to build a mobile telecommunications network. A 6-year tranche INDONESIA BORROWS FOR TWO PROJECTS. cost 95 basis points over LIBOR. The minimum Indonesia's PT Pacific Fibretama Corporation interest rate on an 8-year tranche is initially the obtained a $53 million 6-year term loan at a mar- same but declines over time. The spread will gin of 369 basis points over SIBOR. Shareholders increase each year, however, if the company's provided about 35% of the total project cost in ratio of debt to cashflow exceeds a given level. equity investments. A $122 million 10-year loan at Netia South Sp zoo arranged a $155 million 8-year 450 basis points over SIBOR will be used to con- loan to construct a fixed-line telecommunications struct a gas pipeline. network. Again, the pricing of the loan was linked to the company's debt ratio. INDIA BORROWS FOR TELECOMMUNICATIONS. Escotel Mobile Communications Ltd. of India bor- UTILITY COMPANIES FROM SLOVAKIA ENTER rowed $130 million to finance development of a MARKET. Slovakia's Slovnaft AS, an oil and gas mobile telecommunications network. The fund- company, obtained a $150 million revolving credit ing was put together in four tranches of 7 years facility for 5 years at a spread of 160 basis points IFC helps each: a $40 million tranche cost 46 basis points over residue processing facilities. A private elec- over LIBOR and was guaranteed by Hermes, tric utility raised DM 170 million ($97 million) to companies in which covered 95% of the commercial and politi- construct a power plant. The loan was backed by Brazil and cal risk; a $43 million tranche from a commercial offtake agreements for the generated electricity. Jamaica secure bank cost 234 basis points over LIBOR; a $25 mil- lion direct loan from the Norwegian export credit IFC HELPS COMPANIES IN BRAZIL AND JAMAICA funding agency (Eksport Finans ASA) cost 10 basis points SECURE FUNDING. A private Brazilian company over LIBOR; and a $20 million loan from the US raised $313 million, in three tranches, to expand November 1997 I International lending and capital markets TABLE6 and refurbish roadways. The International $115 million for development of a nickel mine by Sovereign foreign Finance Corporation (IFC) arranged $142 mil- Minera Loma de Niquel CA, a private corpora- Long-term ratings, asbt olion, of which $27 million was guaranteed by the tion. The IFC will also acquire a 3.5% equity stake Long-term ratings, as of September 27, 1997 French export credit agency (COFACE). The in the company. Amortization on the loan was Moody's S&P third tranche was a $171 million loan. The IFC flexible and was tied to the price of nickel. Investment grade Chile BaaI A-AA* also helped arrange $70 million for Jamaica's first China A3 BBB+ independent power project, which is to be FIRMS FROM LEBANON, SAUDI ARABIA BORROW. Colombia Baa3 BBBS/ A+*2 mounted on a barge. The loan included an IFC A- The IFC helped arrange $100 million in project Croatia Baa3 BBB-/ loan of $22 million and an IFC B-loan of $48 mil- financing for France Telecom Mobiles Lebanon, A-* Cyprus A2 AA-/ lion. Equity contributions came from the IFC ($2 to expand the company's telecommunications Czech Republic Baal A million) and the project sponsors ($17 million). network in Lebanon. Saudi Arabia's Yanbu Petro- Estonia Baa I Provisions for selling the electricity to the national chemical Company was in the market for a loan of Hungary Baa3 BBB-/ utility and supplying fuel provided security to the $2.3 billion for 10 years, priced at 52 basis points India Baa3 BB+/ project. over LIBOR. The project sponsors contributed Indonesia Ba BBB $0.2 billion in equity. A+ *' ICHILEAN UTILITY ENTERS MARKET. Chile's state Malaysia AlI Am! M a AlA+* electricity company, ENDESA Chile SA, raised Market creditworthiness Malt AS Am+ $380 million for 5 years at a cost of 26 basis points Panama Baa I BB+/ over LIBOR. The money will be used to construct Costa Rica, El Salvador, Guatemala, PB BBB-/ a hydroelectric plant and refinance earlier con- Ecuador, and Estonia assigned ratings Poland Sa3BB/Eudo,adEtnaasignd5ra-ng A_-2 tracted obligations. Slovak Republic Baa3 BBB-/ S&P AWARDS A BB RATING TO COSTA RICA'S A*' Slovenia A3 A/AR"' MEXICAN TELECOMMUNICATIONS COMPANY DEBT. Standard and Poor's (S&P) assigned a BB South Africa Baa3 BB+/ BBB+*2 BORROWS. Mexico's Avance de Telecommunica- rating to Costa Rica's sovereign foreign currency Thailand A3 A-/ ciones Latinoamericano obtained $578 million to long-term debt (table 6). Analysts attribute the rat- AAR-3 Tunisia Baa3 BBB-/ construct a fiber optic network linking various ing to the country's rapidly expanding and A"' cities. The loan was in two tranches: a $286 million increasingly diversified export sector (accounting Uruguay Baa3 BBB-/ BBB+±' tranche costing 125 basis points for 3.5 years and for 46% of GDP in 1997), low external debt ser- Below investment grade a $292 million tranche, backed by the US Export- vice (estimated at 19% of exports in 1997), and Argentina S SBBB- Import Bank, at 15 basis points for 13.5 years. longstanding tradition of political stability. The Barbados Bal n.a, rating was viewed as constrained by political Brazil S I BB-I Bra2il BB+*[ GUARANTEES FACILITATE GAS PROJECT LOAN IN issues, weak support for further reforms, and an Costa Rica Bal BB/ TRINIDAD AND TOBAGO. Atlantic LNG, a private improving but still weak banking system. Dominican Rep. BI B+2 corporation based in Trinidad and Tobago, Equador BI n.a. secured $600 million for 13 years, guaranteed by MOODY'S AWARDS RATINGS TO DEBT OF EL SAL- Egypt Ba2 BBB-/ A-'* the US Export-Import Bank and the Overseas Pri- VADOR, GUATEMALA, AND ECUADOR. Analysts El Salvador SasS BB/ vate Investment Corporation. The money will be attributed Moody's Baa3 rating of El Salvador's BB+2 Guatemala Ba2 used to construct a natural gas plant on a build- foreign currency, long-term debt to the country's Jordan Ba SB- operate-own basis. The project sponsors provided impressive growth (5.4% a year since 1990), Kazakhstan Ba3 BB-/ $330 million in equity. increased exports, and reduced inflation and fis- Latvia na. BB+ cal deficit. The Ba2 rating of Guatemala's A-"' VENEZUELAN BORROWERS RAISE $565 MILLION. sovereign foreign currency long-term debt Lebanon BI BB-/ BB"' A private oil and gas company raised $450 million reflected the country's macroeconomic perfor- Lithuania Ba2 BBB-/ in two tranches-one for 12 years (at 116 basis mance (annual GDP growth of 3.9% and average Mauritius Baa2 points) and one for 14 years (at 145 basis inflation of 9.6% since 1991), low external debt Mexico a2 SBB/ points)-to develop oil fields and construct oil (debttoGDPratioof20%,andadebtserviceratio (Tob/e continues next poge) transportation facilities. The IFC helped arrange of 10.1%), and completion of the peace agree- * Financial Flows and the Developing Countries International lending and capital markets TABLE 6 (Continued) ment, according to analysts. The rating is con- Thailand downgraded, Kazakhstan Sovereign foreign strained by the need to consolidate structural upgraded currency debt reforms and the pressure on the budget from Long-term ratings, as of increased demands for social spending. The B1 CRISIS IN THAILAND RESULTS IN DOWNGRADE. Septembero27, 19.7 rating of Ecuador's foreign currency long-term S&P revised its rating of Thailand's foreign cur- Below investment grade (cont.) debt is the same as Brazil's and Argentina's. rency long-term debt from A to A- and revised the Moldova Ba2 n.a. Pakistan B2 B+' country's outlook to negative. The downgrade Paraguay n.a. BB-/ MOODY'S AND ICBA RATE ESTONIA'S DEBT. reflects substantial loan losses in the financial sec- BBB *l Peru B2 Estonia's foreign currency debt received a Baal tor and a drop in external financial flexibility. Philippines Bal BB+/ rating from Moody's and a BB rating from the Analysts stress the need for measures to Romania B B International Bank Credit Analyst (ICBA) making strengthen the financial sector-including BBB-*t it the highest rated of all the former Soviet states. stricter prudential regulation and supervision, Trinidad BaI BB+/ The rating reflects successful macroeconomic sta- higher disclosure standards, and timely rehabili- and Tobago BBB+*2 Turkey B I B bilization and rigorous structural reforms. tation or liquidation of insolvent institutions-as Venezuela Ba2 B+ Although there are concerns about the current prerequisites to reversing capital outflows and eas- Vietnam Ba3 n a. credit boom, analysts believe that the pace of the ing credit conditions. Moody's placed Thailand's currency debt and the second to borrowing is likely to slow as the Estonian econ- A3 rating under review for downgrading, and domestic currency debt. borrowing ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~n.a. Not applicable. omy catches up in terms of investment and infras- Thomson BankWatch downgraded its rating to 2. Stable outlook. 2. Positive outlook. tructure needs. BBB. 3. Negative outlook. Dun AND PHELPS RATES INDIA INVESTMENT KAZAKHSTAN RECEIVES UPGRADE. Thomson GRADE. Duff and Phelps assigned a BBB- rating to BankWatch has upgraded its rating for Kaza- India. This is equivalent to the rating of Baa3 khstan's sovereign debt from B- to B. The awarded by Moody's but one notch higher than upgrade reflects success in economic stabiliza- the BB+ rating from S&P. Analysts praised India's tion policies, increased earnings from oil and unblemished debt record and recent financial lib- gas, and higher inflows of foreign direct invest- eralization. The rating is constrained, however, by ment. The rating is constrained by the country's a high fiscal deficit, infrastructure bottlenecks, severe liquidity shortage, vulnerability to trans- slow progress on disinvestment of state enter- portation bottlenecks, and slow progress on prises, and high income inequality. privatization. Emerging stock markets Asian markets post sharp declines IFC's investable composite index (IFCI) IFC's Asia index fell 29% in the third quarter, with drops 9% in third quarter all markets but China, Pakistan, and Sri Lanka posting declines. The drop in stock market Markets in Latin America, Europe, the Middle indexes and sharp currency depreciations in East, and Africa increased slightly during the third Southeast Asia caused steep drops in the dollar quarter, with most seeing a decline in August fol- value of stock holdings and was accompanied by lowed by a recovery in September (figure 15). The large withdrawals from US mutual funds. average market index fell, however, because of a sharp drop in the Asian market. (These data do SouTHEAsT ASIAN MARKETS SUFFER STEEP not reflect the general selloff in stocks in late DECLINES. The Indonesian market posted a 41% October.) decline in the third quarter on the heels of the November 1997 Equity portfolio and foreign direct investment steep devaluation of the rupiah. The government parts of the economy in August. The share index announced the easing of restrictions on foreign rose nearly 2 points on the day of the strike and participation in initial public offerings (IPOs). 0.9 points on the day after. Televisi6n Azteca's ini- Thailand's stock market fell 25% in the third quar- tial public offering, the biggest offering since the ter. The currency crisis has substantially subdued peso devaluation in 1994, signaled a resurgence of market perceptions of economic prospects, with confidence in Mexico. Foreign investment helped the average private sector forecast for Thai growth the Mexican stock exchange rise nearly 50% in cut to 1.9% for 1997 and 2.3% for 1998. The the third quarter (in dollar terms). Peru's stock Philippines market suffered its biggest one-day market fell 8% because of political difficulties. loss in 10 years in August, touched off by a down- Brazil's market experienced considerable volatil- ward revision in growth for the first half of the year ity: shares fell 16% in August, but heavv buying by and by fears of higher interest rates based on the large local pension funds pushed the market up central bank's decision to increase liquidity 11% in September. requirements for commercial banks. Malaysia's market index fell 41% in the third quarter. The Most stock markets in Europe, the government's ban on short-selling (which was sub- Middle East, and Africa increase in sequently eased) was followed by a 12% dip in the third quarter market index over the following week. Except for South Africa and Zimbabwe, all stock CHINA'S MARKET RISES IN THIRD QUARTER. markets tracked by the IFC in Europe, the Middle China's stock market index rose 6% in the third East, and Africa rose in the third quarter. quarter despite the instability in neighboring countries. RUSSIA CONTINUES TO PERFORM STRONGLY. The Russian market posted a 24% increase in the Latin American markets post 4% increase third quarter. In the country's largest single port- folio investment, George Soros, the international Venezuela's stock market fended off the shock of financier, invested $980 million in Svyazinvest, the the nationwide general strike that paralyzed large telecommunications company, following its priva- tization. IGURE 15 IFC's Investable Composite Index, by region KAZAKHSTAN LAuNCHES THE COUNTRY'S FIRST July I1994-September 1997 OFFICIAL STOCK MARKET. Kazakhstan's stock mar- 160 ------------------------------------------------ ----- ket b ket began with a modest pilot trade of shares July 1994=100 worth about $3,000. However, officials believe p that the partial sale of state holdings in leading 140-: . companies will fuel the market later this year. % Europe, the Middle East, / ; f and North Africo ^ 120 , , - - ----- - HuNGARIAN MARKET RISES. Share prices in \ Asia / Y Hungary performed strongly from early July to 100coo