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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: MythMan who wrote (16131)	1/19/1999 7:58:00 AM
From: Cynic 2005	Read Replies (3) \| Respond to of 86076

Mythman, good article. The good thing about it is that it is not 10 pages long, yet covered almost all of world's financial problems. <<So it is not enough for the Fed to stop pouring petrol on the raging fire of Wall Street - a huge tax cut will then be needed to stop the economy collapsing. >> Petrol - a word most of the Americans not even heard of.

To: MythMan who wrote (16131)	1/19/1999 8:05:00 AM
From: Cynic 2005	Read Replies (2) \| Respond to of 86076

<<They have at most $35 billion in dollar-denominated loans outstanding, but nearly all of that has likely been hedged against a currency drop, said James Conklin, emerging-markets currency strategist at Lehman Brothers Inc.>> May be. Being the skeptic that I am, all I want to know is who is on the other side of the hedge. -------------- January 19, 1999 Brazilian Firms Will Find Devaluation Makes Paying Loans More Expensive By PAMELA DRUCKERMAN Staff Reporter of THE WALL STREET JOURNAL Brazil's devaluation will hurt the country's corporate debtors by making it much more expensive, in local-currency terms, for them to repay dollar-denominated loans. But analysts say most firms will likely avoid the tsunami of bankruptcies and defaults that swamped Asian companies in 1997 and 1998. "It's absolutely not comparable to Korea and Thailand," said Lacey Gallagher, director of Latin American sovereign ratings at Standard & Poor's Ratings Services. "They're better positioned at the outset from an overall leverage point of view." Brazilian corporate debt was 41% of the country's gross domestic product in 1998, according to S&P. By contrast, South Korea's corporate debt was a crushing 193% of its GDP last year, and Indonesia's was 128%. Brazil's banks are also better off than their Asian counterparts: They have at most $35 billion in dollar-denominated loans outstanding, but nearly all of that has likely been hedged against a currency drop, said James Conklin, emerging-markets currency strategist at Lehman Brothers Inc. "Brazilian financial institutions look well-insulated from the initial impact of the devaluation -- they're overhedged," Mr. Conklin said. The relatively low debt levels came about largely because Brazilian companies were unable to borrow. The country's domestic interest rates have long been prohibitively high, and international markets only resumed lending to Brazilian companies once the country tamed inflation in 1994. Asian companies, by contrast, have been able to borrow both domestically and internationally for some time -- and were buried under debt when their currencies collapsed. "The Brazilian corporates simply didn't have access until recently," Ms. Gallagher said. "That's why they find themselves better able to face a crisis than were their Korean or other Asian counterparts a year ago." The Brazilians certainly aren't out of the woods. Medium-term and long-term private-sector debt jumped to $119 billion last year from $54 billion in 1996, through a combination of bank loans and bond issues. And there is an additional $26 billion in corporate debt that comes due this year. In the immediate aftermath of the devaluation, S&P downgraded 17 Brazilian companies. The rating agency has requested additional accounting data from all the companies it tracks and is reviewing those data, S&P analyst Daniel Araujo said. Companies whose ratings were cut last week include utility firms Cia. de Eletricidade do Rio de Janeiro and Eletrobras -- Centrais Eletricas Brasileiras SA; paper and pulp companies Industrias Klabin de Papel e Celulose SA and Aracruz Celulose SA, media company Globocabo SA; Votorantim Group; and food companies Ceval Alimentos SA and Sadia SA. Analysts say their biggest concern is about $6 billion in corporate Eurobonds that come due this year. Because the bonds are typically held by hundreds of investors, they are tougher to finesse than bank loans, which can often be renegotiated directly with a small group of lenders. Some bankers say they have already resigned themselves to rolling over loans for important clients. "Bankers, when things get bad, are a little more flexible and a little more willing to work with the debtor," Mr. Conklin said. Another insulation against Brazil's devaluation is that many of the country's biggest foreign-currency borrowers are exporters like oil company Petroleo Brasileiro SA, or Petrobras, which earn money in dollars, plus steel, mining and paper companies. Foreign lenders have flocked to these firms with short-term trade loans to finance exports. At higher risk of default are companies with high levels of foreign-currency debt but revenue in the local currency, known as the real. It will be tough for those companies to pass their higher costs onto consumers because Brazil is headed into a recession that should cut wages and push up unemployment, analysts say. And all that corporate debt could put additional pressure on the weakened real because companies that don't earn dollars will have to buy the U.S. currency to repay their debts.