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Argentine Corporate-Bond Drought Ends as Government's Swap Reduces Yields
IRSA Inversiones y Representaciones SA’s sale of international bonds ended a three-month drought in offerings from Argentine companies after benchmark borrowing costs fell to a two-month low.
IRSA, the country’s biggest real estate developer, issued $150 million of bonds due in 2020 to yield 11.875 percent yesterday, the first overseas sale since Pan American Energy LLC sold $500 million of 11-year debt on April 30. Yields on Argentine government dollar debt, a benchmark for corporate borrowing costs, have dropped 82 basis points in the past two weeks to 10.92 percent and touched the lowest since May 4 on July 14, according to JPMorgan Chase & Co.
Corporate rates are falling after the country completed a restructuring of defaulted debt, paving the way for the government’s first international bond sale since 2001. YPF SA, the Buenos Aires-based unit of Spain’s largest oil company Repsol YPF SA, and Pampa Energia SA, Argentina’s biggest energy holding company, say they’re considering overseas sales.
“There is good market momentum in general and especially for Argentine corporate bond issuers,” said Jim Harper, director of corporate research at BCP Securities in Greenwich, Connecticut. “Yields continue to decline and corporates have begun tapping markets.
YPF is monitoring market conditions as it plans its first sale since 1999 as part of a program to borrow $1 billion, according to a person familiar with the matter who declined to be identified because he’s not authorized to speak publicly. Pampa Energia is prepared to tap markets, Chairman Marcelo Mindlin said in a June 14 interview in Buenos Aires.
Yield Spread
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries slid 12 basis points, or 0.12 percentage point, to 741 at 4:36 p.m. New York time, according to JPMorgan. It’s down from 846 on July 1. The cost of protecting Argentine debt against non-payment for five years with credit-default swaps rose 12 basis points to 923, according to data compiled by CMA DataVision.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The yield on Argentina’s benchmark dollar bonds due in 2015 rose one basis point to 11.74 percent, according to pricing from Deutsche Bank AG. Warrants linked to economic growth rose 0.05 cent to 8.4 cents on the dollar. The peso climbed 0.1 percent to 3.9326 per dollar.
Brazil Sales
Argentine corporate bond sales, while picking up, remain a fraction of those in neighboring Brazil, where companies sold more than $2 billion worth of debt the past two weeks. Those offerings top what Argentine companies have issued since January 2008, according to BCP’s Harper.
Argentina’s local corporate debt market dried up after President Cristina Fernandez de Kirchner nationalized private pension funds in 2008, said Daniela Cuan, a senior corporate debt analyst with Moody’s Investors Service in Buenos Aires.
“Without the pension funds, companies will continue to issue small amounts of short-term debt,” Cuan said in a telephone interview from Buenos Aires yesterday. The restructuring “doesn’t fundamentally change the situation for most companies in Argentina,” she said.
Last month, five companies sold a total of $80 million of domestic debt maturing in three years or less, Argentina’s central bank reported on July 13.
2007 Offering
IRSA last sold overseas bonds in 2007, when it issued $150 million worth of 10-year bonds to yield 8.5 percent. The securities yielded 9.92 percent yesterday, or about 200 basis points below the rate the 2020 bonds fetched in the offering, according to data compiled by Bloomberg.
Citigroup Inc., Itau Unibanco Holding SA and Banco Santander SA managed the sale.
IRSA and the government are rated B, five levels below investment grade, by Fitch Ratings.
The government postponed plans to sell $1 billion of 2017 dollar bonds as part of its restructuring after yields soared following credit-rating downgrades in Greece, Spain and Portugal. Economy Minister Amado Boudou said the country will wait for its yields to fall below 10 percent.
Argentina’s defaulted debt “was something negative that has been removed for the most part; the exchange was an important step forward,” said Francisco Velasco, an analyst with Exotix Ltd. in Buenos Aires. “If the sovereign manages to return to international markets with a global bond sale, that will further bolster companies’ ability to go to market.”
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
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