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Asset-Backed Bond Sales Jump to Most Since 2001 Default: Argentina Credit
Argentine bonds backed by loans on everything from homebuilding projects to electronics purchases are climbing to the most in at least nine years as growth quickens in South America’s second-biggest economy.
Asset-backed bond issues jumped 94 percent in the first seven months of the year to $3.2 billion, the highest level since Argentine credit markets seized up after the government defaulted on $95 billion of bonds in 2001, according to Moody’s Investors Service. Yields that can reach 700 basis points, or 7 percentage points, over the country’s benchmark bank rate are luring investors willing to take on more risk, said Martin Fernandez, a Moody’s analyst in Buenos Aires.
“We currently have transactions almost every month because of the consumption boom that we are having,” said Sergio Capdevila, who helps coordinate asset-backed sales at Buenos Aires-based Banco de Valores SA.
Argentines are stepping up borrowing as surging commodity exports spark an economic expansion that the central bank forecasts may reach 9.5 percent, the strongest pace in 18 years. Farmers are selling a record 55 million ton harvest of soybeans, the country’s biggest agriculture export, as prices on the grain climb to an eight-month high.
Credit-card financing jumped 34 percent in the first five months of the year while personal loans rose 21 percent, according to the central bank. Shopping center sales rose 38 percent in July from a year earlier, according to the Argentina National Statistics and Census Institute in Buenos Aires.
Garbarino, Fravega
Home-appliance stores including Buenos Aires-based Garbarino and Buenos Aires-based Fravega issue an average 50 million pesos ($13 million) of debt every month backed by loans they hand out to customers, Capdevila said.
The securities can have maturities as short as three months and pay yields between 12.75 percent to 16.5 percent, he said. Central bank 99-day bills, by comparison, yielded 12.12 percent at an auction this week.
Most of the bonds backed by consumer debt pay yields linked to the benchmark Badlar rate, which was 10.06 percent as of Sept. 7, Fernandez said.
The government, which restructured $12.9 billion of debt remaining from the 2001 default in June, is the biggest seller of asset-backed debt, having issued 61 percent of the securities to finance infrastructure projects, according to Moody’s. Home- appliance stores accounted for 13 percent and private banks issued 8.8 percent of the securities.
Overheating Concern
“The relatively stable macroeconomic scenario has helped to push the level of delinquencies in securitization lower,” Fernandez said. “Most of these transactions have performed very well even during the crisis so there is a good track record for securitization to grow.”
The surge in growth that’s fueling the pickup in debt sales may be short-lived, said Daniel Volberg, an economist at Morgan Stanley in New York.
“Argentina should look at its history just like the rest of Latin America, because if growth gets too strong, then the economy overheats and the adjustments are more severe,” Volberg said. “In our forecast we see a more gradual slowdown.”
Morgan Stanley predicts growth will slow to 5.9 percent next year from 9.7 percent in 2010. Gross domestic product expanded 6.8 percent in the first quarter after expanding 0.9 percent in 2009, according to the statistics institute.
The peso was little changed at 3.9464 per dollar at 9:13 a.m. in New York.
Default Swaps
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell four basis points yesterday to 882, 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 extra yield investors demand to hold Argentina’s dollar bonds instead of U.S. Treasuries narrowed 11 basis points to 705, according to JPMorgan Chase & Co.’s EMBI+ index. The gap is down from an eight-month high of 878 on May 25.
“Because there has been such a strong yield compression in the sovereign market, investors are looking to get exposure to overall Argentina” through asset-backed debt, said Enrique Alvarez, head of Latin America fixed-income research at IDEAglobal in New York. “It reflects a more diverse bounce in the economy as there’s growing investor confidence in the expansion of the market.”
To contact the reporters on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net
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