The province and the city of Buenos Aires are hiring banks ahead of plans to sell about $1.5 billion of international bonds this year, according to people with direct knowledge of the matter.
The government of the Argentine capital plans to issue about $500 million of bonds. Not all of that would provide the government with new money as the bonds may be offered in exchange for outstanding bonds maturing in 2015 and 2017. Buenos Aires province plans to raise about $1 billion, the people said, asking not to be identified because the matter is private. City and province representatives have already sent invitations to investment banks for them to present proposals, the people said. No banks have yet been hired, the people said.
Argentine issuers are looking to take advantage of a drop in borrowing costs abroad and to roll over some of the debt coming due in 2015 to preserve international reserves used to pay creditors that are near a seven-year low of $28.3 billion. Argentine government, provincial and corporate bonds have rallied as President Cristina Fernandez de Kirchner’s government takes steps to repair relations with the international financial community and prepares to hand over her 8-year mandate to a new government next year.
Press officials for the province and city of Buenos Aires, who can’t be named in accordance with internal policy, declined to comment on plans to sell debt.
Fernandez devalued the peso in January, paid Repsol SA with $4.67 billion in bonds as compensation for seizing a controlling stake in YPF SA in 2012, unveiled revamped inflation and growth data to meet International Monetary Fund concerns and raised interest rates by as much as 13 percentage points to 28.9 percent.
State-run energy company YPF raised $1 billion of securities due 2024 in April with a coupon of 8.75 percent. Those notes have risen 2.5 cents on the dollar since being sold, pushing the yield down to 8.37 percent.
The City of Buenos Aires could pay a coupon below 10 percent, the people said, because it has never defaulted on its debt and receives most of its revenue from tax collection rather than relying on central government funds.
The Province of Buenos Aires depends more on federal government transfers and would need to pay an interest rate above 10 percent, the people said, adding that it would be willing to do so given current financing needs.
Both the city and province would be able to issue the bonds with maturities of 5 to 7 years, the people said.
The $475 million city bonds maturing next year have a 12.50 percent coupon and were sold in April 2010 while the $415 million of notes due in 2017 have a coupon of 9.95 percent. The province’s $1.05 billion of bonds maturing in October 2015 carry a coupon of 11.75 percent.
The Argentine government is also talking to four banks to be able to sell bonds abroad in what would be the first international sale since its record $95 billion default in 2001.
A return to markets would depend on an agreement with the Paris Club and allowing the IMF to review government accounts. A resolution to the legal dispute with holdout creditors including billionaire Paul Singer’s Elliott Management Corp. would also accelerate financing abroad, the people said.
The transaction could either be an exchange of $5.9 billion bonds maturing in October 2015 or a new sale. The federal government isn’t willing to pay rates above 10 percent, which today wouldn’t be possible, the people said.
The government’s dollar-denominated debt yields an average 10.31 percent, according to JPMorgan Chase & Co.’s EMBIG Diversified index.
Economy Ministry press official Jesica Rey didn’t respond to an e-mail or telephone message from Bloomberg seeking comment on government plans to return to capital markets.
Fernandez, 61, isn’t eligible to run for re-election next year. The leading candidates to replace her are Daniel Scioli, Sergio Massa and Mauricio Macri.
Government debt has returned 47 percent in the past year, according to data compiled by JPMorgan.
To contact the editors responsible for this story: Peter Eichenbaum at email@example.com Daniel Cancel, Steve Dickson