Sectoral Library Vol. 4 No. 1

Sectoral Library, 21987 Vol. 4 No. 1

Published Time: Sun, 05 Apr 2026 12:39:36 GMT

Financial Flows and the Developing Countries

Developing countries are benefiting from increased investor confidence and greater access to international capital markets, although month-to-month developments are heavily influenced by changes in the international environment. The summer months saw some drop-off in both bond and loan financing by developing countries. Nevertheless, bond issuance by developing countries hit a record for the first nine months of the year, despite fears of rising interest rates in the US, and spreads continued to narrow. Emerging stock markets and prices of secondary market debt instruments fell in July along with the declines in US stock and bond markets, and then rose in August and September as US markets firmed. New equity issues also rose with the enormous deal brought to market by Telefonica del Peru, and privatization efforts continued in a number of countries.

International lending and capital markets

Bonds

Bond issuances eased during the quarter but remained at record levels for the first nine months of the year. Spreads declined, and secondary market prices ended the quarter at their highest level since January 1994.

Commercial bank loans

Loan commitments declined slightly in the second quarter to $21.4 billion. Project finance activity rebounded as a result of increased borrowing from Asian countries.

Market creditworthiness

Developing countries' performance continues to improve, according to Institutional Investor's semi-annual survey of country credit ratings.

Equity portfolio and foreign direct investment

Emerging stock markets

The IFC's investable composite index lost 8% in the third quarter because of July's sharp drop.

New equities

New equity issues rose sharply in the third quarter, with the enormous Telefonica del Peru deal coming to market. Mutual funds targeted at emerging markets have grown rapidly over the past few years.

Foreign direct investment and privatization

Asian and US firms plan continued large investments in Latin America. Privatization efforts are strengthening in Brazil, Egypt, and Peru, among other countries.

Official flows

Multilateral flows

Multilateral commitments declined in the third quarter, owing to a drop-off of World Bank loans at the beginning of the fiscal year.

Bilateral ODA and export credits

Japan and Norway plan increased ODA commitments, and Japan's Export-Import Bank showed increased commitments in the third quarter. The US EX-IM Bank approved an Environmental Credit Initiative with Brazil's Banco Credibanco, making it the first international commercial bank to increase support for environmentally beneficial projects in cooperation with the US EX-IM Bank.

Debt relief update

Official creditors

The Paris Club reached agreements with Congo, Peru, and Yemen.

Commercial creditors

There were no agreements in the third quarter to restructure debt owed to commercial banks.

Financial brief: East Asian bond issues on the rise

Bonds are becoming the fastest-growing source of financing in East Asian markets, which have historically relied on bank and equity finance for investment funds. Why the change in the 1990s?

Contents and summary

Statistical appendix

Tables on external debt, aggregate long-term resource flows, and foreign direct investment flows are published only as data are updated.

• New bond issues
• New loan issues
• New equity issues
• Bank and trade-related nonbank claims
• Commercial bank claims on developing countries
• Commercial bank claims on developing countries, by country of origin
• Maturities of bank claims on developing countries
• Funds raised on international capital markets
• Secondary market debt (bid) prices
• Emerging stock markets
• Country groups

November 1996

Bonds

Developing-country bond issues decline slightly in the third quarter

Bond activity tends to slow down during the summer months, and 1996 was no exception. After a buoyant start the volume of bonds issued by developing countries tapered off during the quarter to $22.6 billion, slightly below the $23.3 billion in the previous quarter (table 1). Still, developing countries raised a record amount during the first nine months of 1996—$65.7 billion, compared with 1995's record of $57.8 billion—despite considerable volatility in the US bond market.

Improved country fundamentals, which boosted investor confidence, and high liquidity in the debt markets contributed to bond issuances.

The increase in bond issuance is mainly attributed to improved country fundamentals, which boosted investor confidence, and high liquidity in the debt markets, a consequence of the record amount of bonds that matured this year. At the same time spreads have continued to fall: the dollar sector saw the smallest decline (about 20 basis points), while the deutsche mark sector saw the largest fall (more than 100 basis points). The yen sector landed in between (about 40 basis points).

Sovereign issues from Latin America dominate

Latin American borrowers accounted for 56% of total bond volume. Sovereign issues increased by a whopping 65%, to $9.7 billion, while private sector borrowings fell 53%, to $2.1 billion. Mexico topped the bond league table at $8.7 billion, followed by Argentina at $1.8 billion and Brazil at $928.4 million. The Mexican government raised $7.7 billion during the quarter, seizing the window of opportunity created by strong economic reports—in the second quarter real GDP was 7.2% higher than last year's level, and Standard & Poor's upgraded its debt rating from negative to stable. Proceeds will be used to repay some of the loans it received from the International Monetary Fund (IMF) and the US Treasury, as well as to buy back some Brady bonds (recently restructured debt).

Also during the quarter United Mexican States issued the largest sovereign Eurobond ever and raised $5.4 billion at a spread of 200 basis points over the three-month dollar LIBOR with five years to maturity. The issue was rated investment grade, a few notches above a sovereign rating, because it is backed by Pemex's oil revenues. Investors included commercial banks, insurance companies, pension funds, and mutual funds. The government also raised $1 billion in the dollar market with a 20 year to maturity global bond issue at a spread of 445 basis points above comparable US Treasuries.

In the deutsche mark sector the government raised $676 million, at a spread of 288 basis points with eight years to maturity. The issue has a step-up coupon beginning at 8.12% and increasing to 10.87% after September 2001. From the private sector Cemex SA raised $600 million through two tranches—4 years to maturity and 10 years to maturity—at spreads of 425 basis points and 587.5 basis points. Some of the proceeds will be used to acquire Colombian cement producer Cementos Samper.

Argentina tapped the deutsche mark, dollar, and sterling markets for a total of $1.2 billion, as proposals to reduce the fiscal deficit that were consistent with the IMF program helped boost investor confidence. In the dollar market Argentina raised $500 million with a three-year floating rate note at a spread of three-month LIBOR plus 270 basis points, compared with a five-year issue at a spread of 427 basis points in February. In the deutsche mark sector Argentina continued to extend the maturity of its issues and raised $507.5 million through two tranches, at 7 years and 20 years to maturity. Marking the eleventh currency sector in which it has raised funds, Argentina made its debut in the sterling sector for $154.5 million with a five year to maturity note at a spread of 390 basis points. Issues from the private sector included a $100 million issue by Banco Hipotecario Nacional and an $85 million issue by Compania de Transporte de Energia.

Brazilian entities raised $928.4 million, of which 40% went to the banking sector. Banko Bradesco and Unibanco raised $100 million each, Unibanco with a three year to maturity note and a spread of 290 basis points (compared with a similar issue earlier this year at a spread of 370 basis points). Companhia Brasilera de Projetos e Obras, a private construction company, tapped the escudo market for $48 million, with an eight year to maturity bond at a spread of 470 basis points above six-month LIBOR. The issue is the third made this year in the escudo market by a Brazilian entity. Comrtel Brasileira, a private telecommunications company, issued a $310 million eight-year bond, the largest issue by a Brazilian firm.

With renewed confidence in the economy, the government of Venezuela raised $437 million in the deutsche mark sector at a spread of 440 basis points for seven years, compared with last year's three-year issue at a spread of 507 basis points. Basco Ganadero, a Panamanian private bank, raised $75 million at a spread of 385 basis points. The $125 million issue by Instituto de Fomento Industrial, a Colombian public banking entity, enjoyed a narrower spread (185 basis points) than most other Latin American issues. Chilean entities continue to borrow at very favorable terms—Compania de Telecommunicaciones de Chile raised $200 million at a spread of just 83 basis points above comparable securities, with five years to maturity.

Largest securitized issue emerged from Asia

Asian borrowers, both public and private, tapped the market for $8.5 billion, of which $3.6 billion went to Korean entities (with the banking sector accounting for 83%). The Korea Development Bank launched four bond issues in the yen sector for $634 million and made a $115.9 million debut in the Australian dollar market with a three year to maturity note at a spread of 28 basis points. The Korean Export-Import Bank tapped the US dollar market for $500 million at a spread of 44 basis points for five years. The government announced that in 1998 foreigners will be allowed to invest in unsecured convertible bonds issued by large domestic business, but full opening of the domestic bond market will wait until the gap between Korean and overseas interest rates narrows to 2% from 6-7% currently. Thai entities raised $1.4 billion, of which 77% went to the banking sector. The largest securitization during the quarter from an Asian issuer came to the market when Thai Car Ltd. launched a $250 million, 5.5 year to maturity floating rate note at a 22 basis point spread over three-month LIBOR. The issue was backed by auto-lease receivables and carried an AAA rating by Moody's and Standard & Poor's. European banks bought most of the issue.

The two issues by Zhuhai Highway, which raised $200 million, marked the first bond offerings from China issued without a guarantee from a sovereign or state-level entity. Chinese entities raised $1.2 billion, with the government tapping the dollar market for $300 million at a spread of 110 basis points for 10 years. Bond issuance by the Philippines reached $1.5 billion during the quarter, of which $1.1 billion went to the government. The government launched two debut samurai issues for $369 million, which were rated investment grade by a Japanese rating agency. The 5.5 year to maturity issue carried a spread of 159 basis points, while the seven-year issue carried a spread of 200 basis points. The government followed in Mexico's footsteps, issuing an uncollaterized 20-year fixed-rate dollar eurobond for $690 million. Most of the proceeds went to buy back Bradys. Demand was strong, and the spread at launch was 225 basis points above US Treasuries.