YPF Pushing for 6% Yield as Government Pays More Than 8%: Argentina Credit

YPF SA is seeking to sell as much as $600 million of bonds this month at 6 percent, the lowest rate for an Argentine company this year and about half the yield on the country’s provincial debt.

The company, a unit of Madrid-based Repsol YPF SA, is trying to cut the yield it pays on the international bonds after receiving offers from investors willing to accept 6.5 percent, said a company official who asked not to be identified because the talks are private. The debt would have a maturity of six to eight years, another official said.

YPF’s bonds would yield at least 500 basis points, or 5 percentage points, less than those sold by Buenos Aires province and lender Banco Supervielle SA this year. YPF’s sale comes after the yield on federal government bonds due in 2017 sank 396 basis points since June to 8.3 percent, while the average yield for Latin American energy companies in Credit Suisse Group AG’s Labi index fell 83 basis points to 6.81 percent yesterday.

“If I’m going to take Argentina exposure, I’d rather own the provincial debt at 11 percent,” Eric Ollom, chief emerging- markets strategist at Jefferies & Co. in New York, said in a telephone interview. “If I’m a dedicated emerging-markets person, with a limited amount of Argentina allocation, I’m not buying YPF because it’s going to underperform. I’m not going to own a YPF several hundred basis points through the sovereign.”

Repsol’s 2017 bonds denominated in euros yield 4.43 percent. The 2018 dollar bonds from Petrobras, Latin America’s largest oil company by market value, yield 4.77 percent.

Provincial Bonds

Buenos Aires province, Argentina’s largest by population, sold $550 million of five-year bonds to yield 12 percent in September and another $250 million of the notes to yield 11.75 percent the next month; the yield was 11.23 percent yesterday.

Banco Supervielle bonds due in 2017 yielded 11.5 yesterday after being sold at 11.62 percent.

Moody’s Investors Service rates YPF’s long-term debt Ba1, one step below investment grade. Supervielle’s rating is Caa1, seven steps below investment grade. Buenos Aires province is rated B3, one step higher than Supervielle.

Argentine companies are selling the most bonds in global markets since 2007. Candy maker Arcor SAIC, rated two steps below investment grade by Moody’s, sold $200 million of seven- year notes at 7.25 percent on Nov. 4, while Pan American Energy LLC, Argentina’s second-largest crude producer, sold $500 million worth of bonds April 30 at 8.125 percent.

Arcor’s bonds yielded 6.32 percent yesterday, while bonds from Pan American, which is rated Ba1 by Moody’s, were priced at 6.95 percent.

Bond Spreads

“The spreads of Arcor and others compressed after the bond sale and have reached close to 6 percent,” Juan Pablo Vera, a Buenos Aires-based bond analyst with brokerage Tavelli y Asociados, said in a phone interview yesterday. “It is a low yield, but the excess of liquidity makes this possible.”

A YPF official, who can’t be identified because he isn’t authorized to speak publicly for the company, declined to comment on the bond sale plans.

The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries fell 7 basis points today to 500 as of 9:28 a.m. New York time, the highest among major emerging markets after Venezuela and Ecuador, according to JPMorgan Chase & Co.

Default Swaps

The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 1 basis points to 636 yesterday, 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 Argentina’s economic growth rose 0.06 cent to 13.98 cents today, according to data compiled by Bloomberg. The peso fell 0.1 percent to 3.9764 per dollar.

YPF on Dec. 7 said that it replaced 100 percent of its crude reserves for the first time in 12 years and also announced its biggest gas discovery in at least 35 years, which would help it stem declining output from maturing fields.

The company is operated by Argentina’s Eskenazi family, which owns 15.4 percent of the company. Repsol, which owns 83.21 percent, announced this month it plans to sell as much as 15 percent through share offerings in New York and Buenos Aires. Repsol acquired YPF in 1999.

The Eskenazi family, who bought their stake in 2007, has an option to acquire an additional 10 percent by 2012. YPF Chief Executive Officer Sebastian Eskenazi said in May the group wants to make use of the option before the end of this year.

“Lower yields are absolutely fueled by the local political climate and YPF’s management has affinity with the government,” Tavelli’s Vera said.

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net

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