News Column

Fitch: Weak Emerging Market Insolvency Regimes Drive Caution

July 21, 2014



CHICAGO--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: Weak Emerging Market Insolvency Regimes Drive Caution

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726015

Jurisdictional issues such as the robustness of an insolvency regime and the strength of its bankruptcy laws should be taken into account when evaluating investments in emerging market bonds along with possible recovery rates in terms of absolute amounts and the time needed to restructure, according to a new Fitch Ratings report.

"Emerging markets continue to present incremental risks to fixed-income investors in the context of creditor rights in the event of default," said Daniel Kastholm, Managing Director and Regional Group Head for Fitch's Latin America Corporate group. "While many emerging market countries have either revised or passed new legislation to improve the theoretical position of creditors in recent years, there is still a limited track record and the results are not good."

In some countries a limited number of cases have been ultimately resolved by the highest federal court, and lower federal court decisions tend to be inconsistent and, in some cases, contradictory. Thus, uncertainties still remain as to whether the practical application of the law by the legal system would be in line with the legal theory.

Improvements have been made in Brazil and Mexico through revisions in insolvency laws but are still considered weak. In Asia, the UAE and Russia, the recovery of value through enforcement of security using court processes has yet to attain an established track record.

Complex rules governing the allocation of secured assets can slow down bankruptcy proceedings. Especially in cases in which effecting foreclosure requires court-supervised arbitration, the transfer of secured assets to creditors can take years.

For more information, see the special report titled "Weak Emerging Market Insolvency Regimes Drive Caution," which is available on the Fitch Ratings web site at www.fitchratings.com or by clicking on the link above.

Additional information is available at 'www.fitchratings.com'.

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Fitch Ratings

Dan Kastholm, CFA, +1 312-368-2070

Managing Director

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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