LatinFinance - May/June 2017 - 22

DEBT
ARGENTINA

With investors lapping up their high-yield paper, Argentine
borrowers are making up for lost time. By Peter Agra

Room for more

fter an active 2016, Argentine issuers attacked the new year in full force.
The government, banks and corporate issuers came to the cross-border bond markets with
transactions both traditional and novel, ranging from plain vanilla bonds to global-peso deals
and Swiss franc issues.
The surge in deals reflects the fact that most issuers had been frozen out of the market following the country's 2001 debt default.
"They've been playing catch up, especially the sovereign and provinces," says Nicolas
Bendersky, a debt capital markets banker at Citi.
Tierra del Fuego, the smallest province in the country, was among the throng this year.
It issued a $200 million bond in early April with a yield of 9.25%. Later in the month, lender
Banco Macro set its sights on a rare "global-peso" bond, a $300 million-equivalent deal denominated in local currency and marketed to investors in Europe and the US.
Appetite for even the most esoteric of transactions is fueled by investors' growing confidence on the country's economy. S&P Global Ratings lifted the country in April to B from
B-, citing its improved economic policy. The agency pointed to advances made by President
Mauricio Macri's center-right administration in resolving large economic imbalances, while
restoring the country's policy credibility.
Despite an economic contraction of 2.3% in 2016, Argentina's GDP could expand at 3% annually over the next three years, S&P predicts. As a result, Argentina is gaining a reputation,
amid low yields globally, as "one of the good places where you can pick up a great carry," says
Sean Newman, a senior fixed income analyst at Invesco.
Investors are partial to Argentine debt because "it's a good credit and they don't have
enough of it", says Diego Ferro, co-chief investment officer at Greylock Capital, who forecasts
issuers will keep up the pace of bond sales in the months ahead. By tapping public debt, "issuers can help offset the fact that the economy has taken longer to recover than was expected".
The heightened number of offerings indicates issuers are already feeling more positive,
but a few difficulties have arisen, leaving some observers to wonder if investors are tiring of
Argentine risk.
For example, La Rioja targeted green bond investors, who rarely entertain credits below
investment grade. To get its B/B- paper to market, the province had to settle for a 10% yield,

22 L ATINFINA NCE.COM - May/June 2017

above the 9.625% yield that sources originally told LatinFinance that it had anticipated.
"The yields reflected the fact it is a lower
quality province, with some risky characteristics," said Jason Trujillo, a senior analyst at
Invesco, at the time of the offering.
Meanwhile, the secondary market in
provincial debt has not yet caught up with
the pace of new bond sales. Investors
tend to rotate from one provincial issue to
another, says Lisandro Miguens, head of
Latin American debt capital markets for
JPMorgan. "When a new province is issuing,
other provincial debt tends to suffer a bit in
the secondary market as investors go for the
new debt."
Meanwhile, Argentina's B3/B/B sovereign debt rating caps potential grades for
the country's corporate borrowers, notes
Samuel Bevan, a credit research analyst at
Aberdeen Asset Management.
"If they were based anywhere else, some
of the corporate issues could be rated higher
by some standards," he says.
Tarjeta Naranja is a case in point. The
firm is Argentina's leading credit card issuer, with 207 branches and a 16.5% market
share. Yet Moody's highlighted the weight of
the sovereign ceiling in late March when it
rated Tarjeta Naranja's $250 million-equivalent global-peso transaction.
"Naranja's ratings are constrained by
Argentina's operating environment, which
remains challenging despite various marketfriendly policy reforms implemented by
the new administration," the ratings agency
said.

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Table of Contents for the Digital Edition of LatinFinance - May/June 2017