2. Corporate strategies for seizing market opportunities

The Coming Emerging Market Debt Squeeze

A deal was finally reached in June 1998 on the restructuring of interbank debt, corporate debt and trade credits.

What the market is saying is not that the economy has too much debt, but that it has too much private debt, which is why prices of corporate bonds are low and firms find financing expensive. The market is also saying clearly and repeatedly that the economy has too little public US government debt, which is why everyone wants to hold it.

The most prominent example is money market mutual funds. These entities take money from investors and buy various kinds of assets, some of which may be risky like short maturity corporate debt.

Capital Market Commission's Committee on Corporate Governance in Greece (1999). Principles on Corporate Governance in Greece Recommendations for Its Competitive Transformation (Mertzanis Report).

The recent equity market rally is largely divorced from fundamentals and is driven by speculative, debt financed purchases. The outlook for corporate profits remains weak the country s equity supply is growing and valuations are stretched.

It is recognized that there is an increase in the number of corporate governance accolades, awards, ratings, rankings and even corporate governance stock market indexes where constituents are selected on the basis of good practices in corporate governance.

Poor s found that, a year later, these firms total debt amounted to 14.2 trillion, eclipsing the 13.1 trillion of outstanding debt in the United States and making China the world s largest issuer of corporate debt.

Furthermore, China has not yet completed its market orientated reforms, which could unleash major growth potential in many areas. Given the role that institutional factors play in China s corporate debt problem, such reforms could go a long way toward resolving it.

The Government followed up on the debt restructuring by directing the banks to arrange corporate restructuring of distressed indebted firms.

Comparative Study of Corporate Governance Codes to the European Union and Member States. European Commission, Internal Market Directorate General.

Issues that could be addressed in this connection concern further corporate involvement in overcoming information market failures with regard to investment and business opportunities in developing countries and corporate participation in risk mitigation schemes.

By and large, experience supports this method. Indeed, the huge expansion in emerging market domestic debt issuance in recent years has helped reduce market tensions (though continuing reliance by corporates on foreign debt still leaves many countries vulnerable).

How is that possible? As corporate finance experts have been saying for 30 years, having too much debt and too little equity is costly, so reducing the face value of debt can sometimes benefit not only equity holders, but also debt holders.

And the market is prone to temporary fits of shared enthusiasm for emerging market debt, for Internet stocks, for residential mortgage backed securities, for Greek government debt. Traders need not wait to see when or whether the profits materialize.

The first phases of that treatment, from 1982 to 1988, relied on debt reschedulings and new liquidity support, together with a market menu of options, which allowed limited amounts of voluntary debt reductions through debt securitization at a discount, debt equity swaps and debt buy backs.

For instance, the LCS Group (IT) has invested in the United Kingdom as part of its corporate expansion and market access strategy.

Microeconomic factors for investment site selection included the corporate tax structure, trade and customs regimes, the labour market situation and financial infrastructure.

Financial market investors have been waiting patiently for the government to announce a strategy for addressing the issue of external corporate debt. The CBR did introduce a 12 month dollar facility for up to 50 billion, but this will barely last until the end of 2015.

Of the roughly 200 trillion in global financial assets today, almost three quarters are in some kind of debt instrument, including bank loans, corporate bonds, and government securities. The derivatives market certainly helps spread risk more widely than this superficial calculation implies, but the basic point stands.

Permanent debtor creditor dialogues, the provision of transparency, and information on emerging market debt would be ensured through the creation of a permanent international debt framework secretariat.

32 William Lazonick, Public and corporate governance the institutional foundations of the market economy , paper presented to the Economic Commission for Europe (2001).

23. Needs previously mentioned were elaborated, namely, to maintain and increase market share, demonstrate compliance with national environmental legislation and enhance corporate image.

Accordingly, he called for increases in aid, debt relief, and deepening of preferential market arrangements to decrease poverty.

The panellist from the School of Oriental and African Studies (SOAS) stressed the need to view corporate responsibility initiatives in their specific market contexts.

Lazonick, William (2001). Public and corporate governance the institutional foundations of the market economy. Paper presented to the Economic Commission for Europe, May 2001.

Grundsatzkommission Corporate Governance (German Panel for Corporate Governance) (2000). Corporate Governance Rules for German Quoted Companies.

Argentina s interests and those of its creditors were thus aligned both wanted growth. It was the equivalent of a Chapter 11 restructuring of American corporate debt, in which debt is swapped for equity, with bondholders becoming new shareholders.

In 1989, the Brady Plan was announced with unprecedented official commitment, most particularly from the United States of America, Japan and the Bretton Woods institutions, to support debt reductions in line with debt prices on the secondary market.6 For many indebted countries, this market based approach allowed a reduction of external debt at a significant discount.

The role of the corporate sector, and corporate strategies

Like everywhere else in the developed world, the global crisis has hit the French economy hard, with output stagnating, unemployment rising, job insecurity mounting, government debt soaring, and the stock market at risk of crashing. Manufacturing production has plummeted, the trade balance has deteriorated sharply, and corporate bankruptcies are increasingly frequent.

In the United States, conditions for an economic takeoff ostensibly have been present for the last year. Household debt and unemployment have fallen corporate profits and cash reserves are large the stock market is valuing the future generously banks are ready to lend and fiscal consolidation is no longer hampering demand.

sponsors a monthly advocacy project of contacting governments and global institutions regarding timely UN issues, e.g. fair trade, human rights, environmental issues, debt relief, corporate responsibility, etc.

Statement on Global Corporate Governance Principles. International Corporate Governance Network.

IMF staff have produced a number of reports on corporate insolvency, bank insolvency and the restructuring of unsustainable sovereign debt, including Orderly and Effective Insolvency Procedures Key Issues (1999) (analysing major policy choices to be addressed in the design of an effective corporate insolvency system).

(ii) for financial market users in particular, there is a need to understand how corporate environmental strategy and performance impacts on financial performance and shareholder value.

This reaching for yield has driven up the prices of all long term bonds to unsustainable levels, narrowed credit spreads on corporate bonds and emerging market debt, raised the relative prices of commercial real estate, and pushed up the stock market s price earnings ratio to more than 25 higher than its historic average.

Corporate strategy

Corporate responsibility

Revised Statement on Global Corporate Governance Principles. International Corporate Governance Network.

Finance Committee on Corporate Governance (2000). Malaysian Code on Corporate Governance.

Both are cases of severe economic crisis, to be sure. But the eurozone s problems stem from high levels of government debt, while South Korea faced massive capital flight and a collapsing currency and almost all of the debt was in the corporate sector.

(b) Debtor creditor dialogue to explore alternative market based approaches for dealing with debt service difficulties in order to avoid defaults

Corporate Governance Committee (2004). The Belgian Code on Corporate Governance ('Lippens Code')