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Chubut Weighs $200 Million Bond Sale to Break 11-Month Drought

Argentina’s Chubut province is considering issuing as much as $200 million of bonds abroad, which would be the first overseas sale for a province in almost a year.

“We’re looking at our financial options on how to tap the markets abroad,” Oscar Antonena, the province’s undersecretary of finance coordination, said in a telephone interview from the capital Rawson. “We are working to have everything ready so that, in case there’s a window to sell, we can make the decision.”

Argentine provinces have been absent from international markets since March, when the northern province of Salta sold $185 million of 10-year bonds to yield 9.5 percent, as borrowing costs surged. Since the last sale, the extra yield investors demand to hold Argentine government debt instead of Treasuries has risen to 10.98 percentage points from as low as 7.84 percentage points on March 19 last year, according to JPMorgan Chase & Co.’s EMBI Global index.

Chubut is also watching the government’s legal battle with hedge funds seeking full payment for bonds from the country’s 2001 default to determine the best moment to issue, Antonena said. A U.S. appeals court will hear arguments from Argentina and the funds Feb. 27 to decide whether to uphold a judge’s ruling that ordered President Cristina Fernandez de Kirchner to pay investors $1.33 billion in principal and accrued interest.

Court Case

“We have to wait and see,” Antonena said. The province hasn’t established the terms of the potential sale, he said.

Antonena, who traveled last week to New York to meet with investors, said that the sale would be under the global program approved by the local legislature. Proceeds would be used to finance infrastructure projects, he said. BNP Paribas SA is consulting on the sale, according to Antonena.

The yield of Chubut’s 7.75 percent bond that matures in July 2020 fell to 9.26 percent on Feb. 14, the last day they traded, from 11.77 percent on Nov. 27, according to prices compiled by Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The bonds are backed by oil royalties and were sold in 2010.

The new securities may also be backed by oil royalties from the energy-rich province, he said.

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