Argentina’s return to markets several times subscribed
Latin American country ends a 15-year exile from the international debt market
Argentina has secured one of the most anticipated market comebacks in recent history, ending 15 years in exile with a sale of debt that has attracted bids of more than $65bn.
The successful issuance represents a remarkable turnround for the Latin American country, which has been frozen out of global debt markets since defaulting on close to$100bn in 2001.
Guidance issued by the banks underwriting the deal put the yield on new 10-year Argentine debt between 7.5 per cent and 7.625 per cent, below the earlier expected level, with shorter-dated three- and five-year bonds yielding about 6.4 per cent and 7 per cent, respectively. The 30-year bond is predicted to yield about 8 per cent. The country is expected to raise up to $15bn in total.
The size of Argentina’s debt sale, and the length of time it spent frozen out of markets, distinguishes it from other countries that have managed to issue debt following default, including Ivory Coast and Ecuador. Even Greece, which sold debt in 2014 after the biggest debt restructuring in history, issued a comparatively small €3bn.
Argentina has been forced to raise a much larger sum in order to settle a long-running dispute with creditors and finance the country’s budget deficit.
Following its 2001 default and the refusal of some creditors to accept a restructuring deal, including a fund managed by Paul Singer’s Elliott Management, the country has been engaged in a lengthy and rancorous fight in international courts that has sparked a global effort to redesign the way that countries borrow money.
In 2014, Argentina defaulted for a second time as a result of the legal battle, which prevented it from paying creditors unless it also paid holdouts.
However, the election of President Mauricio Macri’s market-friendly government at the end of last year has ignited renewed investor interest in Latin America’s third-largest economy.
“Argentina has one of the best economic policy teams in emerging markets and they have the potential to transform the economy,” said Anthony Simond, investment analyst at Aberdeen Asset Management. “They are still unproven so at the moment the country has to pay up to borrow, but we are positive.”
On Friday, global rating agency Moody’s upgraded Argentina’s credit rating, noting economic policy improvements and possible settlement with holdout creditors. Although the B3 rating leaves the country’s debt in “junk” territory, the upgrade was seen as supportive of the upcoming sale and Argentina’s peso jumped more than 2 per cent against the US dollar on the day.
While some investors had expected the country to issue more than $18bn this year, Secretary of Finance Luis Caputo has said Monday’s debt sale, led by Deutsche Bank, HSBC, JPMorgan and Santander, would be the only one until 2017.
“It’s a complex issue to price,” said Simon Lue-Fong, head of emerging market debt at Pictet Asset Management. “You can look at existing Argentina debt or comparable issuers such as Brazil, Lebanon or Ecuador. But Argentina has been absent from markets for a long time and is about to issue a lot of supply so there is no easy comparison.”
In February, Buenos Aires reached a $4.7bn agreement with holdout creditors, representing the lion’s share of outstanding debt not restructured. Last week the US District Court of Appeals in New York affirmed a judge’s ruling to lift an injunction that barred Argentina from paying certain creditors, paving the way for the country to exit default.
However, Argentina faces significant risks to its economic future, including a deep recession in neighbouring Brazil, wavering risk appetite from global investors, a bulging fiscal deficit and inflation forecast to end the year at 25 per cent, according to the International Monetary Fund.
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