| In this paper we document the use of debt capital by Sovereign Wealth Funds (SWFs). According to our estimates, as of 2014 there are 10 levered SWFs with outstanding debt around USD 180 billion. We identify three main reasons why SWFs may decide to resort to debt capital, namely: i) increasing their size and diversify their sources of funding; ii) contributing to the development of their domestic bond market, and; iii) optimizing their cost of financing at the group level.
Characteristics of levered SWFs -- as opposite to funds restrained from using debt -- are consistent with these goals. The use of debt is less common among SWFs from democratic countries, where it can entail higher political risk. Finally, we address the credit risk of levered SWFs and its relationship with the credit risk of their countries’ governments...............................................Full Article: Source |