Tariff Increase by Fernandez to Buoy Airport Bond Sale: Argentina Credit
Aeropuertos Argentina 2000’s success in winning price increases from the government may allow the country’s biggest airport operator to pay a lower interest rate on its $300 million bond sale than similarly rated Latin American companies.
The company, whose B rating from Standard & Poor’s is five levels below investment grade, will pay a rate of 8 percent to 9.5 percent on its first international bonds, said Jim Harper, director of corporate research at BCP Securities in Greenwich, Connecticut. Latin American corporate bonds rated B yield an average of 10.63 percent, according to Credit Suisse Group AG indexes.
Aeropuertos Argentina, based in Buenos Aires, got permission for a 61 percent increase in passenger fees last year that account for almost 50 percent of its revenue, according to Standard & Poor’s. The rise is part of two contract changes the company has won from President Cristina Fernandez de Kirchner’s government since 2007. Most Argentine utilities have failed to convince authorities to ease price caps implemented during the economic crisis in 2002.
“This is one of the few contracts that have been renegotiated after 2002,” Luciano Gremone, an analyst at S&P in Buenos Aires, said in a telephone interview. “Today, eight years later, many contracts of utility companies have never been renegotiated.”
The offering would be bigger than overseas debt sales by Arcor SAIC, Latin America’s biggest candy maker, and power distributor Empresa Distribuidora y Comercializadora Norte SA in the past two months. Arcor, based in Arroyito, Cordoba province, sold $200 million of seven-year bonds on Nov. 4. Edenor, as the utility company is known, raised $140 million of debt due in 2022 on Oct. 15.
“This would be bigger than some of the other things we’ve seen out of Argentina, so we might look at it because it’s a little bit bigger and potentially more liquid,” Jack Deino, who oversees about $1.6 billion of emerging-market debt at Invesco Inc. in New York, said in a telephone interview. “A large deterrent to us buying Argentine corporates has been deal sizes.”
Argentine companies are taking advantage of a decline in costs after the government restructured $12.2 billion of defaulted bonds in June and the central bank forecast the economy will grow 9 percent. The yield on Argentine government dollar bonds, the benchmark for companies, sank 257 basis points, or 2.57 percentage points, since June to 8.96 percent, according to JPMorgan Chase & Co.’s EMBI+ index.
The company is “taking advantage of a good moment in the market as far as liquidity, rates and appetite for emerging markets,” S&P’s Gremone said. “Rates are low in all of Latin America.”
Aeropuertos Argentina plans to sell 10-year bonds to fund improvements at its Ezeiza and Aeroparque airports, which account for 94 percent of revenue, according to Moody’s Investors Service.
Aeropuertos Argentina will pay a minimum of 10 percent to 10.5 percent as investors seek compensation for the risk of declines in air travel, said Ruth Mazzoni, a corporate bond analyst at Standard Bank in New York. Arcor paid 7.25 percent.
“It’ll depend on the composition of the cash flows,” Mazzoni said in a telephone interview. “No one had to model an interruption in people eating cookies or candies in Arcor. You don’t have to do that.”
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries narrowed 10 basis points at 5:02 p.m. in New York to 517, according to JPMorgan.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 7 basis points to 640, according to data compiled by CMA. 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.
Warrants linked to growth in South America’s second-biggest economy rose 0.31 cent to 13.80 cents, according to data compiled by Bloomberg.
The peso increased 0.1 percent to 3.9740 per dollar, from 3.9774 on Dec. 3.
Aeropuertos Argentina boosted the rate it charges passengers on international flights to $29 from $18 last year, according to S&P. Two years earlier, the government said that the fee would be paid in dollars instead of pesos, making the company less vulnerable to currency fluctuations. The peso has dropped 23 percent against the dollar since 2007.
“They have less currency risk, which is good,” said BCP’s Harper. “If the peso were to devalue, they have an easier ability to pass that on than Edenor does or others. It’s not like a local electricity company or local toll road company, which doesn’t have any relationship with the dollar.”
Florencia Perez, a spokeswoman for Aeropuertos Argentina in Buenos Aires, said company executives declined to comment. The Transportation Ministry didn’t respond to an e-mail seeking comment on the tariff increase.
Former President Nestor Kirchner, Fernandez’s husband and predecessor, kept utility rates frozen when he took office in 2003. They were capped the previous year to restrain inflation after then-President Eduardo Duhalde devalued the peso. In 2008, Fernandez allowed electricity companies to raise rates as much as 30 percent for the country’s biggest users.
Price caps have spurred international utilities including GDF Suez SA of Paris, operator of Europe’s largest-natural gas network, and France Telecom, the country’s biggest phone company, to scale back in Argentina or leave the country.
“The fact that they negotiated these two tariff agreements says that the company gets answers from the government,” Veronica Amendola, an analyst at Moody’s in Buenos Aires, said in a telephone interview.
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