Finance and Economic

Rising corporate debt delinquencies and the first sovereign credit default in two years are kindling investor concerns that more emerging market borrowers could fail to repay their debt.

As the global credit crunch trundles past its first anniversary, some firms and governments are faltering on rising refinancing costs and heightened investor risk aversion.

Seychelles failed to service a privately placed 55 million euro note last month and now teeters on a default of its $230 million global bond due this October.

The tiny island-nation’s debt woes have emerged as sovereign default risk premiums for Argentina, Ecuador and Pakistan soar.

“With the deteriorating global growth environment, you have to believe some countries may get into trouble,” Angus Halkett, Deutsche Bank emerging markets strategist.

The level of distressed emerging sovereign debt — defined as bonds trading at spreads over U.S bad credit payday loans. Treasuries of above 1,000 basis points — remains relatively low.

By mid-August, it amounted to $3.3 billion or 2.1 percent of outstanding sovereign bonds versus 1.6 percent in June 2007 before the onset of the liquidity crunch.

Investors say sovereign debt default risks remain low. 

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