Manila: Global investment and economic growth may slow if some debt-funded corporate takeovers “turn sour”, International Monetary Fund (IMF) managing director Rodrigo de Rato said in Manila.
There are “grounds for concern in the recent dramatic growth in large private-equity buyouts, which are being financed by a rising proportion of debt,” he added.
Treasuries are headed for their biggest monthly gain since February, as a worldwide slump in stocks and corporate bonds sent investors to the relative safety of government debt. More than 40 companies have revised or dumped bond offerings in the past three weeks as investors refuse to absorb more risky debt after a wave of losses from US subprime mortgages.
“If some of these deals were to turn sour, it could trigger a reappraisal of risk which would curtail market access more broadly,” de Rato said. “This in turn could adversely affect investment and growth prospects.”
Voicing concern: IMF managing director Rodrigo de Rato.
De Rato’s comments come a week after the IMF raised its forecast for world economic growth to 5.2% this year, from an earlier estimate of 4.9%.
Growth in Europe, Japan and emerging markets including China and India is proving stronger than the fund expected three months ago, compensating for a weaker US.
Countries that receive “very substantial flows” of funds are at risk of an “abrupt reversal,” de Rato said on Tuesday without naming specific countries.
Still, he said, the recent turbulence in financial markets will be contained amid an absence of “systemic risk.”
De Rato also said China needs to have “more flexibility” in its exchange-rate policy. US legislators are pushing for sanctions against Chinese trade policies, which they blame for the US trade deficit.