Bond Market ‘Darling’ of 1990s Makes Comeback: Argentina Credit
By: Ben Bain and Veronica Navarro Espinosa
Argentine companies and provinces are selling the most debt overseas since 2007 as issuers from Cordoba to IRSA Inversiones Representaciones SA tap into declining borrowing costs after the government restructured defaulted debt.
Companies and provinces have issued $1.03 billion of bonds in international markets this year. Sales were $3.65 billion in 2007 and $465 million last year, according to data compiled by Bloomberg.
Argentine debt deals will climb further as Buenos Aires, the country’s biggest province, prepares to sell $500 million in dollar bonds abroad this month. The yield on the province’s bonds due in 2018 tumbled 188 basis points, or 1.88 percentage points, since the end of June, when President Cristina Fernandez de Kirchner reorganized $12.9 billion of debt from the country’s 2001 default.
“You have the fact that they got the sovereign hold out deal done, and also there were a lot of people who didn’t want to touch Argentina for years after the default,” said Jim Harper, director of corporate research at BCP Securities in Greenwich, Connecticut. “Now people are saying: ‘Hey, it’s been years and all these companies have continued to service their debt and there’s yields, let’s jump back in.’”
Buenos Aires province spokeswoman Felisa Stangatti confirmed the sale plans in an interview on Sept. 8. The yield on the province’s $475 million of 9.375 percent notes rose one basis point on Sept. 10 to 13.26 percent, Bloomberg data show. The province doesn’t include the city of Buenos Aires, which has its own government.
While Argentine issuance is picking up this year, the country’s bond sales are a fraction of the $13.5 billion borrowed in 1999, two years before it defaulted on a record $95 billion of debt, according to data compiled by Bloomberg.
Argentine overseas borrowing this year also lags behind Brazil at $26.6 billion, Mexico with $22.3 billion and Chile at $3.4 billion. That standing is a reversal from 1999, when Argentina raised $13.5 billion, more than each of those countries.
Standard & Poor’s rates Argentina B-, six levels below investment grade and down from BB in 1997. Brazil is rated BBB- by S&P, the lowest investment grade. Mexico has BBB rating from S&P.
“In the 1990s Argentina was the darling of the emerging markets,” Harper said in a phone interview. “It was considered a much better credit than Brazil, and now obviously things have turned totally the other way.”
Yields on Argentina’s 7 percent bonds due in 2015 rose 20 basis points On Sept. 10 to 11.23 percent, according to Bloomberg market average pricing. Warrants linked to growth in South America’s second-biggest economy were unchanged at 10.80 cents, according to data compiled by Bloomberg.
The peso was little changed at 3.9450 per dollar.
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries tumbled to 709 basis points from 821 since the end of June, according to JPMorgan Chase & Co., as the debt swap boosted demand for the country’s debt.
In July, Buenos Aires-based IRSA, the country’s biggest real estate developer, issued $150 million of bonds due in 2020 to yield 11.875 percent. Argentina’s central province of Cordoba was the last issuer to take advantage of the rally in government debt, selling $400 million of seven-year bonds to yield 12.38% in its first international offering on Aug. 6.
“The fact that the sovereign did the restructuring this year has opened the doors for the corporate sector,” said Eduardo Suarez, an emerging-markets strategist at Royal Bank of Canada in Toronto.
Economy Minister Amado Boudou postponed plans to sell as much as $1 billion worth of bonds due in 2017 as part of Argentina’s debt restructuring in June, saying the country doesn’t need the money and would wait for benchmark yields to fall below 10 percent.
The yield on the South American country’s 8.75 percent bonds due in 2017 rose five basis points on Sept. 10 to 10.69 percent, according to data compiled by Bloomberg. Yields have climbed from as low as 9.64 percent on Aug. 10.
“Whenever there is a sovereign that can come to the market that establishes a very well-defined and liquid yield curve that always helps corporate and provinces because you have a better benchmark,” Harper said.
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