Clifford Dammers, Secretary General of the International Primary Market Association, said he was concerned over the dangers to investors posed when banks cut corners on due diligence -- the process by which an underwriter reviews a borrower's position in detail before launching debt on the international markets.
"We've had a lot of issuers in the market who are not triple A, and yet the practice of skimping on the due diligence has become prevalent," he said.
"And now we have issuers from the Third World for whom due diligence is triply important," he said, adding that it was sometimes difficult to get emerging market borrowers to agree to such an assessment when it was not applied across the board.
While Eurobond issuance -- the main way countries and corporate borrowers raise capital on the international capital markets -- is down this year on 1993's record volume, emerging market debt is the one area that has seen continued growth.
Last month Lebanon became the first Middle Eastern borrower to issue a Eurobond. Poland and Pakistan are said to be preparing maiden deals, and Latin American borrowers like Mexico, which sparked the debt crisis in 1982, have been back in force.
But increasing pressure on underwriters to bring fresh deals quickly means they are reluctant to incur the costs involved in carrying out due diligence, Dammers said.
He said some underwriters appeared blas?, and investors were often ill-informed about the risks.
"I find it surprising, to say the least, that a bank that lost millions and millions of dollars lending to a Latin American country is now happy to underwrite that same country's bond issues," he said. "The one thing that would make people cautious is if we had a major default and someone successfully sued the underwriter."
Risks on Eurobonds include not only default but also poor performance of an apparently credit-worthy deal, if unpleasant surprises emerge in an issuer's results.
Dammers said IPMA, founded in part to liaise with regulatory authorities, would be examining these questions over the coming year, and might try to develop guidelines.
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