Whether Argentina’s next president is Daniel Scioli, Sergio Massa or Mauricio Macri, investors will return in droves after next year’s elections as the nation moves closer to returning to capital markets, said Claudio Porcel, head of asset management firm Balanz Capital Sociedad de Bolsa SA.
“This administration isn’t going to crash the economy, they don’t want to leave in a helicopter like a former president had to, they want to go out the front door,” Porcel, 49, said in an interview in Buenos Aires yesterday. “The next president will regain market access and be able to raise as much as $60 billion in sovereign, provincial and corporate debt. I can’t imagine a better job.”
Argentina’s low debt-to-gross domestic product ratio, improved relations with foreign creditors and vast shale oil and gas resources will benefit the next government to attract investment once the decade-long rule by the Kirchners ends in late 2015, Porcel said. The former banker, who sold his family-owned Banco Liniers Sudamericano to Deutsche Bank AG in 1999 before the end of the peso’s peg to the U.S. dollar and the collapse of Argentina’s economy in 2001, started Balanz in 2002 and now oversees $350 million of fixed-income investments. Balanz Capital trades over $1.5 billion of securities per month, some 20 percent of the local market share, Porcel said.
The top candidates ahead of next year’s vote are Scioli, the governor of Buenos Aires province, Massa, a lawmaker and former cabinet chief under Fernandez, and Macri, the mayor of Buenos Aires city.
While growth has averaged about 6 percent in the Kirchner era, inflation has accelerated to an estimated 38 percent this year while foreign direct investment fell to the lowest in 11 years in the first quarter, according to the central bank.
Fernandez, who has battled with hedge fund manager Paul Singer over defaulted debt, imposed capital controls in 2011 in a bid to slow capital flight and has seized the country’s largest energy producer, pension funds and the flagship airline. Locked out of capital markets, she has financed increased social spending through the central bank and treasury, eroding a widening fiscal deficit.
The next 16 months before the new government may be rocky with the U.S. Supreme Court preparing to reply to Argentina’s appeal against holdouts and the government trying to preserve foreign reserves used to pay debt that at $28.6 billion are near an eight-year low, according to Porcel, who said he meets regularly with Argentine government officials.
The next government will need to tackle the deficit by ending subsidies that currently represent about 4.2 percent of GDP, he said. To do so, Argentina needs energy investment to curb imported natural gas shipments that have drained reserves. By tapping the resources of the Vaca Muerta shale reservoir Argentina could end its energy deficit in as little as three to five years, said Porcel.
Even amid average borrowing costs of about 11 percent, Fernandez’s government may look to obtain financing to add money to reserves to prepare for greater volatility in the second half of the year after the flow of dollars from the soybean harvest ends. If they obtain $10 billion in financing, the country’s yield spread could fall to about 600 basis points over U.S. Treasuries from the 820 basis points of today, he said.
Balanz recommends Buenos Aires province bonds due 2015, Buenos Aires City debt sold under U.K. law and government securities maturing in 2024. The Buenos Aires-based company also recommends corporate debt from candy maker Arcor SAIC, oil company Pan American Energy LLC and construction firm Raghsa SA.
A lifting of the currency controls will be needed to convince foreign capital to return to the country. Argentina’s central bank buys and sells dollars to control the official rate for the peso of about 8.10 while a financial transactions rate trades at 10.7 and the black market is 11.55.
“Nobody wants to bring dollars at 8 pesos when everyone says it’s really worth 11,” Porcel said. “If this administration doesn’t get rid of the controls, it should be the first thing the next president does at their inauguration.”
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