Cracks are deepening for vulnerable companies in emerging markets as global borrowing rates reach their highest levels since the financial crisis, disrupting opportunities to refinance $400 billion in debt coming due in the next year.

As U.S. Treasury yields reach 15-year highs and borrowing costs soar, companies in developing countries have only managed to refinance a tenth of what they needed. Furthermore, the struggle may be just beginning, as refinancing issues may worsen when an additional $300 billion in corporate bonds come due in 2025.

Fund managers and rating agencies say that the longer interest rates remain high, the more precarious this situation will become: for high-quality companies, this could manifest as rising interest rates, but for some of the lower-rated companies, it could mean failed refinancing operations, potentially leading to payment defaults and even bankruptcies.

The phenomenon is already noticeable in countries ranging from Colombia to Dubai, where some companies have had no choice but to cover their upcoming maturities at near double-digit interest rates. For example, the Colombian company Ecopetrol had to pay 8.63% and 9% to borrow $1.5 billion in June, marking a 4-percentage-point increase in borrowing costs over two years. Dubai-based Shelf Drilling Holdings last month sold $1.1 billion in bonds at a yield of 10.13%, with the highest coupon rate ever offered.

Emerging market companies have already defaulted on $26 billion of debt in 2023, bringing the total amount of missed repayments during the current Federal Reserve tightening cycle to $80 billion, according to data compiled by Bloomberg. This compares to just $9.3 billion in 2021 and $9.5 billion in 2020. While most of the maturing corporate debt in emerging markets is of “investment grade,” a significant $110 billion in debt maturities are rated as speculative or high-risk by rating agencies.

The Bloomberg EM USD Aggregate Corporate Index has inflicted a total loss of 0.6% on fund managers this year, compared to a 4.3% gain for a similar indicator of high-yield U.S. corporate debt.

With the FED message: “interest rates for a longer period”, the pain in emerging markets has just started.