Argentina's Cordoba Province to Sell Bonds at Lower Cost Than Buenos Aires
Cordoba Governor Juan Schiaretti, center, attends a police graduation ceremony. Source: Province of Cordoba Press Office
Cordoba, Argentina’s third-largest province, will pay lower yields on its first international bond than Buenos Aires because Cordoba is in “better shape” than its neighbor, according to Agustin Honig, a managing director at New York-based Abadi & Co. Securities Ltd.’s local unit.
“In general terms, the province of Cordoba is in better shape than the province of Buenos Aires,” Honig said in a telephone interview from Buenos Aires.
Cordoba, located in the heart of the South American country, may pay 12 percent on overseas bonds, or about 2 percentage points less than the yield on Buenos Aires province’s 9.375 percent notes due in 2018, according to Honig.
Buenos Aires province, the largest in Argentina and home to more than 12.9 million people, posted a budget deficit equal to 10.7 percent of revenue last year compared with 3.3 percent for Cordoba, according to Patricio Esnaola, an analyst at Moody’s Investors Service in Buenos Aires. Cordoba recorded budget surpluses in each of the previous six years.
Cordoba, headed by Peronist Governor Juan Schiaretti, hired Citigroup Inc. and UBS AG to arrange the sale of dollar bonds, said a person familiar with the transaction who declined to be identified because terms aren’t set.
Debt Restructuring
State-run Banco de Cordoba director Alejandro Henke headed to Los Angeles yesterday to market the offering to investors, his Buenos Aires-based assistant Marina Cicconi said. Cordoba Finance Secretary Monica Zornberg referred calls to state-run Banco de Cordoba, which is managing the sale for the province.
Buenos Aires Economy Ministry spokeswoman Felisa Stangatti did not return two calls seeking comment.
Cordoba hired Moody’s to rate the province’s bond, Esnaola said. Buenos Aires’s 2018 notes are rated B3, six levels below investment grade, by Moody’s.
Henke said in March the province was waiting for the Argentine government to complete a restructuring of defaulted debt before tapping overseas markets. President Cristina Fernandez de Kirchner last month closed an offer to swap $18.3 billion in debt held by creditors who rejected a 2005 settlement offer, sparking a decline in borrowing costs.
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries fell 31 basis points to 665 at 5:33 p.m. New York time, according to JPMorgan Chase & Co. The gap is down from 846 on July 1.
Default Swaps
Yields on Argentina’s benchmark dollar bonds due in 2015 rose 14 basis points, or 0.14 percentage point, to 10.85 percent, according to Deutsche Bank AG prices. Warrants linked to economic growth slid 0.05 cent to 9.65 cents.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps rose one basis point to 805, 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 peso declined 0.1 percent today at 3.9341 per dollar.
Cordoba sold $150 million of 12 percent bonds due in 2017 in the local market in November.
Chubut province, the nation’s top oil producer, last week sold $150 million of notes backed by oil and gas royalties paid by BP PLC-controlled Pan American Energy LLC, Argentina’s biggest oil exporter. Chubut sold the notes through a trust to yield 9.66 percent, placing $104 million internationally and $46 million domestically.
The yield on Buenos Aires’s notes due in 2018 dropped 49 basis points today to 13.5 percent, according to data compiled by Deutsche Bank. That’s down from a two-month high of 17.37 percent in May.
Buenos Aires has historically suffered from “chronic deficits,” Moody’s Esnaola said.
To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
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