Utility Company Probe Ending TGS Bond Rally: Argentina Credit

Argentina’s growing probe into utilities already struggling with price controls is undermining the best rally in two months for bonds sold by Transportadora de Gas del Sur SA, the nation’s biggest pipeline operator.

Yields on TGS’s bonds due in 2017 held at 7.49 percent yesterday, after dropping from 7.61 percent on Dec. 27 in the longest advance for the debt since a 10-day streak ended Nov. 8. The yields are 122 basis points, or 1.22 percentage point, less than the 8.71 percent on Argentine government debt, according to JPMorgan Chase & Co. data.

The advance in TGS bonds halted as Argentine Planning Minister Julio De Vido widened an investigation into electricity companies over power outages during a heat wave last month. Combined with rate controls in place since 2002, the 241 basis point extra yield investors demand to hold TGS bonds rather than regional peers included in Credit Suisse Group AG’s LABI Index reflects the risk of “political interference” at utilities, said Ana Ares, a Fitch Ratings analyst in Buenos Aires.

The company “operates under a tariff regime that has a lot of implicit sovereign risk that can’t be hedged,” said Ruth Mazzoni, a corporate bond analyst at Standard Bank in New York. “It’s permanently exposed to the tariff problem.”

TGS, based in Buenos Aires, sold the $500 million of 7 7/8 percent bonds in May 2007. Yields on the bonds fell 6 basis points, or 0.06 percentage point, to 7.43 percent at 11:35 a.m. New York time.


De Vido threatened on Jan. 3 to rescind the contract for Empresa Distribuidora Sur SA, the nation’s second-largest power company and the electricity supplier for the southern Buenos Aires metropolitan area, after sporadic blackouts struck the city during the December holiday season. He called for an investigation of the company Dec. 29, saying it could face a 50 million peso ($12.6 million) fine.

The government probe will also include Buenos Aires-based Empresa Distribuidora y Comercializadora Norte SA, or Edenor, and Empresa Distribuidora La Plata SA, known as Edelap, De Vido said in a statement by e-mail yesterday.

“The government is deeply outraged with the three big distribution companies,” De Vido said in a Jan. 3 interview on Buenos Aires-based Radio 10. “That’s why all three will be fined and Edesur will have the biggest fine, because it administrated the crisis dreadfully.”

Alejandra Martinez, a spokeswoman for Edesur, declined to comment, the company’s press office said.

Edelap “is responding to questions from the regulator,” Guillermo Baistrocchi, a company spokesman, said in a phone interview.

Price Controls

Argentine power companies have faced price controls put in place by then-President Eduardo Duhalde in 2002, after the country stopped paying $95 billion of debt. The government converted the rates from dollars into pesos, which depreciated as much as 70 percent following the default.

A federal judge in November ordered the Argentine government to allow TGS to raise prices, a ruling the government may appeal.

Mario Yaniskowski, a press official for TGS, declined to comment. Calls to Horacio Mizrahi, a spokesman for the Planning Ministry, on his mobile phone weren’t answered. A message left by Bloomberg at the Planning Ministry’s press office wasn’t returned.

Spread Narrows

The extra yield investors demand to own Argentine dollar bonds instead of U.S. Treasuries fell 6 basis points to 473 yesterday, according to JPMorgan Chase & Co.

Warrants linked to economic growth were unchanged at 15.35 cents, according to data compiled by Bloomberg. The peso fell 0.1 percent to 3.9714 per dollar yesterday.

Government-imposed price freezes drove Transportadora Gas del Norte SA, which transports gas from northern Argentina, to default on $22.1 million in debt in 2008. The government subsequently appointed officials to oversee the company, known as TGN. The frozen tariffs also pushed Metrogas SA, Argentina’s biggest natural-gas distributor, to file for bankruptcy protection in June 2010.

About 50 percent of TGS’s revenue comes from the transportation business while the rest comes from a liquid gas production unit, which operates with unregulated international prices, Fitch’s Ares said. Having two businesses puts TGS, whose pipelines transport gas from southern and western Argentina, in a “unique” situation compared with other gas companies such as TGN, Ares said.

The liquefied gas produced by TGS is “ironically” used by lower income consumers who must pay the higher unregulated price since their households aren’t connected to gas pipelines, Mazzoni said.

TGS is controlled by Compania de Inversiones de Energia SA, or CIESA, which in turn is 50 percent owned by Petrobras Energia SA, the Argentine subsidiary of Brazil’s state-run Petroleos Brasileiros SA. Ciesa has been in default since 2008.

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