Latin Finance - July 2008 - (Page 37)

argentine local markets policy, between employers and workers. with a nominal value of 867.2 million 6.5% and it has a two-year tenor. Argentina already has high rates, with the Local capital provided to companies fell pesos and a yield of 13.3%, the most benchmark Badlar at 17% in early June. to $1.81 billion for the first five months of expensive since the country re-entered 2008, a drop of 44.4% versus the the financial markets after restructuring corresponding period of last year, in mid-2005. This was the first bond Killing the Markets according to the Argentine Institute of issued under Cristina´s presidency, Political instability has been good for which began in December 2007. An secondary trade, but it puts a dampener on Capital Markets. Corporate bond issuance dropped by 92.6% while new share unsettled macro environment should corporate financing. Daily volume in fixed keep rates high and government officials income instruments was $1 billion in early issuance dropped 21.0%. However, the looking to Caracas for cash. June, from $800m a year ago, according to supply of issuance of financial fideicomisos “The government will not like it but I the country’s principal fixed income by large corporates and SMEs rose 37.8% think growth could drop to around 4%,” exchange, the Mercado Abierto Electrónico and 11.2%, respectively. According to says leading local economist Miguel or MAE. Equity trading on the Merval pales Moody’s, the total value of the issuance of Kiguel. “This would help to stabilize in significance, at just $10 million a day. fideicomisos, the main type of ABS in the inflation at around the 20% to 25% level, However the private sector, which country, added up to 3.8 billion pesos in removing the risk of it accelerating.” includes world class companies, is starved the year to May 31. Kiguel says the economy’s The subprime crisis and current capacity growth rate is rising inflation have also taken Argentina Five-Year CDS around 4%-5%, at the present their toll on ABS. Total Spreads hit post-restructuring highs investment level of 24%. securitizations in Argentina 700 There are risks to his forecast: last year amounted to 8.4 Kiguel believes the government billion pesos and ABS 600 must rein in its growth in represented 83% of the total, spending to a maximum according to S&P. In 2006, annualized rate of 30%, from the 500 total securitizations added up June level of 41%. to 7.5 billion pesos and ABS The country is also made up 80%. At the end of 400 vulnerable to an exogenous April, primary issuance was shock if Chinese demand for soft 300 down almost 35% year on year, commodities drops or if there is a according to Merrill Lynch. significant fall in the price of “In structured product 200 soya beans, which would mess markets, we’ve seen a sharp up the government’s fiscal deceleration in primary 100 Jun-2005 Oct-2005 Feb-2006 Jun-2006 Oct-2006 Mar-2007 Jul-2007 Nov-2007 Mar-2008 calculations. The price of soya issuance, as the local market has also been pushed up by struggles to cope with notably Source: Goldman Sachs speculation in the futures higher launch spreads that are market, and is susceptible to a correction still above historical [pre-subprime crisis] for funds. “Corporates seek longer-term in that market. levels,” says Magda Guillen, LatAm financing but as long as the government’s Recently, Argentines have been structured product analyst at Merrill yield curve remains at current levels, I withdrawing pesos and converting to Lynch. “Demand for MBS would likely be doubt there will be much room for high, but current spreads on longer-term dollars. The Central Bank has attempted to substantial expansion,” says Esteves. transactions mean mortgage-backed Argentine corporates are seeing stem depreciation by selling US currency – significant restrictions in terms of size and issuance remains unaffordable for most it has sacrificed $1.7 billion in reserves issuers at today’s rates. This is largely due tenor. Engineering and technology group, between March 27 and May 31. to lingering uncertainty about Argentina’s Industrias Metalúrgicas Pescarmona Meanwhile, a major problem for long-term macroeconomic stability, (IMPSA), issued the biggest bond so far exporters is the fact that high inflation particularly with respect to long-term this year for $65 million late May. It paid erodes competitiveness in real terms and 9.5% nominal for a one-year tenor. Private inflation prospects,” adds Guillen. prompts the real exchange rate to The government has a window of a few banking group, Nuevo Banco Industrial de converge to its long-term equilibrium. A months to rein in spending and put the lid further bout of inflation could bring such a Azul, did the second largest issue, a 73.39 on the inflationary boiling-pot, probably million pesos one-year mid-February at convergence about more swiftly, through even higher interest rates. prompting a hard landing for the economy. Badlar plus 2.5%. Otherwise, Argentina faces a hard landing, The government is not yet Credit card provider, Compañía as inflation eats away at consumer contemplating a change in economic Financiera Argentina, did the third confidence and cuts the real strategy. It believes it can bring down biggest issue for 26.7 million pesos on competitiveness of exporters. LF inflation by a social pact, or incomes May 9; its interest rate is Badlar plus July/August 2008 LATINFINANCE 37

Table of Contents Feed for the Digital Edition of Latin Finance - July 2008

Latin Finance - July 2008 Contents Investment Banking Outlook Compensation Survey Colombia Investment Banking Borrowers vs. Investors Banorte Profile Braskem Financing Strategy Brazil Hydro Finance Peru Port Privatization Panama Money Flows Argentina Local Markets Guide to Banking Technology Who Said That?

Latin Finance - July 2008

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