• July 5th, 2021
• By Midsilver Investment Limited

Global debt securities markets have expanded. Analyzing the BIS international debt securities data, it's evident that offshore branches of non-financial corporates (NFCs) have been pivotal since the Great Financial Crisis. Especially for NFCs from emerging market economies (EMEs), issuing debt through these branches, primarily in US dollars, correlates with global financial conditions. Despite a temporary uptick in credit risk premiums post-pandemic, the past year witnessed strong issuance. Merging data on both international and domestic debt, it's clear that borrowing has skyrocketed for firms in advanced economies and certain EME sectors.

After the Great Financial Crisis, there was a notable tilt towards market-based finance, elevating the importance of debt securities in the global financial framework. Following this shift, debt issuance began outpacing bank lending, with a more robust connection to global financial conditions. The economic repercussions of Covid-19 and subsequent policy reactions have further molded these trajectories.

To delve into the post-crisis non-financial corporate (NFC) debt landscape, we use BIS international debt securities data and its detailed component, Dealogic. Our analysis centers on the direct market-fueled credit provision to the sector hardest hit by the pandemic. Primarily, we categorize data based on the nationality of borrowers – pinpointing the issuer's main office location - rather than the usual focus on residence in capital flow analyses. As NFCs operate more globally now, this method aligns with the view of the core decision-makers. We apply this lens even when merging international and domestic debt data, scrutinizing pandemic-related shifts in industrial sectors and credit evaluations.

In the last ten years, international debt of NFCs has seen consistent growth, with a sensitivity to global financial climates. Notably, "offshore" branches—those situated outside the main office's country—have been instrumental. By the end of 2020, outstanding debt amounted to 6.8% of GDP for advanced economy borrowers, up from 3.9% in 2009. For EME borrowers, it rose from 1.2% to 2.2% of GDP. The correlation between global financial conditions and IDS issuance post-crisis is particularly pronounced for EME-based corporates. This relationship is predominantly evident in US dollar-based issuances via their offshore branches. By the close of Q1 2021, these offshore amounts in all currencies constituted 55% of the total IDS volumes for EME NFCs, in contrast to less than 30% for AE NFCs.