Argentina’s most populous province is preparing a return to international bond markets to benefit from the lowest borrowing costs in two years.
Buenos Aires province hired Bank of America Corp. and Deutsche Bank AG to arrange investor meetings in Europe and the U.S. this week as it plans to sell $500 million in debt, according to people with knowledge of the matter, who declined to be identified because they aren’t authorized to speak publicly.
The offering would be the first for Buenos Aires in three years and follows Cordoba province, IRSA Inversiones y Representaciones SA and Pan American Energy LLC in selling bonds abroad during the busiest year for Argentine issuers since 2007. Buenos Aires yields are 10 percentage points above similar- maturity U.S. Treasuries, which may help draw investors seeking alternatives to lower returns in developed economies.
“Everyone is interested in yield,” said David Spegel, the New York-based head of emerging-market debt strategy at ING Groep NV. “There’s certainly demand out there.”
Yields on the province’s bonds due in 2018 dropped to 12.2 percent, the lowest since March 2008, from 16 percent in January, as the country’s fastest economic expansion since at least 1995 buoys tax revenue, according to data compiled by Bloomberg.
Argentine companies and provinces have issued $1.03 billion of bonds in international markets this year as President Cristina Fernandez de Kirchner restructured $12.9 billion in defaulted debt. Sales were $3.65 billion in 2007 and $465 million last year, Bloomberg data shows.
Buenos Aires officials are meeting investors after the province’s rating was raised one level by Standard & Poor’s last week to B, five levels below investment grade. That followed S&P’s Sept. 13 decision to raise the national government’s credit rating for the second time in two months to the same level, citing “improvements in the government’s financial profile.”
“Now it’s a good time to come and take advantage of what positive sentiment might be left for the credit, given that it was revised upwards in line with the sovereign,” Spegel said.
A record 55-million metric ton soybean harvest and surging auto exports to Brazil helped Argentina’s economy grow 11.8 percent in the second quarter from a year earlier, the fastest since at least 1995. The economy will expand 9.2 percent this year, up from a previous forecast of 6.5 percent, Toronto-based RBC Capital Markets said in a report yesterday. The government last week forecast growth of 8.9 percent this year.
Buenos Aires’s budget authorizes it to sell $1.1 billion of bonds this year, according to an Economy Ministry official in La Plata, the provincial capital, who asked not to be named in accordance with government policy. Investors may demand a yield above 12 percent for notes maturing in more than seven years, according to ING’s Spegel.
Argentine Economy Minister Amado Boudou told reporters June 23 that the national government has no fiscal need to sell debt this year and that it would wait until yields fall below 10 percent before considering a sale.
The extra yield investors demand to own Argentina dollar bonds instead of U.S. Treasuries rose 12 basis points to 672 today at 5:30 p.m. New York time, according to JPMorgan’s EMBI Global index.
The yield on benchmark 7 percent securities due in 2015 increased 15 basis points to 9.99 percent, according to Bloomberg market average pricing.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps was unchanged at 751, 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 debt agreements.
Warrants linked to growth in South America’s second-biggest economy rose today 0.08 cent to 11.98 cents, according to data compiled by Bloomberg. The peso fell 0.1 percent to 3.9518 per dollar.
Buenos Aires sold $400 million of 9.625 percent bonds due in 2028 in April 2007, the last time the province tapped international markets.
The province may be able to sell debt because Argentina is the only place in Latin America and the Caribbean where investors can get a 12 percent yield in dollar bonds apart from Venezuela, said Joe Kogan, the head of emerging markets strategy at Scotia Capital Markets in New York.
Argentina’s debt restructuring “was a positive sign that they were able to get new funding and maybe they wouldn’t continue being such a renegade creditor that is in continuous state of default,” Kogan said. “It made all foreign investors a little more comfortable.”
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