LatinFinance - May/June 2016 - 24

percentage point between 2007 and 2014,
compared with 20 points in Chile, 15 in
Brazil and 10 in Mexico, according to the
McKinsey Global Institute. In the second
quarter of 2014, Argentina's corporate
debt-to-GDP ratio was 9%, far below Chile's
86%, Brazil's 38% and Mexico's 22%, the
data shows.
Pricey debt
But there is a hindrance for borrowing:
high interest rates.
The benchmark is the central bank's
35-day Lebacs, which was increased to 38%
after a 40% depreciation of the currency
in December in a move to cool demand for
dollars and steady the exchange rate and
reduce inflation. While the rate was later
cut to 30%, the bank raised it back to 38%
after inflation quickened to nearly 40% annual in the first half from 26% in 2015.
To cut the rates, the Macri government
is betting on a surge in foreign investment
and a record harvest of soybean, the
country's biggest export, to boost dollar
supplies.
The challenge is that inflation also must
come down, and that will require lower
interest rates for companies to borrow so
they can boost production capacity and the
supply of goods. Without a rate cut, companies will continue to limit their borrowing
for working capital, not for the long-term
investment needed to curb inflation, revive
economic growth and create jobs, Dubiski
says.
Luciano Cohan, chief economist at Elypsis, an economic consulting firm in Buenos
Aires, says he expects the Lebac rate to hit
28% by the end of the year, and then gradually fall in 2017.
Go to the market
Despite the high rates, Gonzalo Vallejos,
a managing director for AdCap, a Miamibased Latin American investment bank, is
recommending that companies enter the
markets, first with small, short-term issues.
While expensive, he says it will prepare
them for what's to come: better borrowing
conditions to fund growth.
For those already in the market, a strategy is to sell redeemable bonds, so that as
interest rates decline, firms can pay off the
bonds early and then sell new securities at
lower rates and longer terms.
"If the situation calms, they can capture
the upside," Vallejos says.
Another challenge for boosting lending
in Argentina is how to bring more small

24 L ATINFINA NCE.COM - May/June 2016

DANIEL ZUBILLAGA,
FIRST CORPORATE FINANCE ADVISORS

"WITH THIS NEW
GOVERNMENT,
COMPANIES ARE
MORE WILLING TO
DO WHAT THEY'VE
NOT ASPIRED TO DO
FOR YEARS"

companies to the market. To accomplish
this, the government is working to lower the
minimum revenue requirement needed for
access and increase bond issue amounts to
100 million pesos ($7 million) from the current limit of 15 million.
It also wants to require mutual funds to
invest more in small- and medium-sized
firms, which in Argentina number around
170,000 and account for 40% of GDP and
40% of the workforce. There has been an
average of 10 bond issues by SMEs per year
over the past decade, considerably less
than the 83 by big companies, according to
data compiled by the Argentine Institute of
Capital Markets (IAMC).
IPOs
Another step to increase access to capital is
for more companies to list, like TGLT. Over
the past 10 years, only 13 companies have
gone public, and two have since delisted,
according to IAMC.
Grupo Supervielle, a family-controlled
financial group, has filed to raise $100 million through an IPO on the Buenos Aires and
New York stock exchanges, and Bioceres, a
maker of drought-resistant soybeans, has
done the same for $81 million. Puente, a financial services company, and Corporación
América, a holding company with interests
in airports, construction and farming, are
also considering IPOs.
One potential hurdle may be timing, as
the recession cuts into some companies'
revenue. But by listing, companies can set a
market value for a foreign company to buy
equity, helping to spur growth, Vallejos says.
Economists say they expect to see an
increase in bond and equity sales in the
second half of the year, assuming an economic recovery can drive down inflation
and interest rates.
Could the prediction for an economic
turnaround be too optimistic?
Many analysts say no. Argentina has
a capacity for rapid rebounds. It started
recovering 18 months after the 2001 crash,
one of its worst on record.
"We all thought that the world was going to collapse for three, four, five years, or
more, but the recovery was much quicker
than we expected," says Daniel Zubillaga,
another partner at First Corporate Finance
Advisors.
"With this new government, companies
are more willing to do what they've not
aspired to do for years because the country
was in default," he says. "The mood has
improved." LF
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