- Three or four bond deals may price before end of year
- IPO market may restart in 2016 led by the financial sector
Bank of America Corp. has surged to the top of Argentina league tables for bond sales this year, advising on the biggest deals from the Province of Buenos Aires to state-run energy company YPF SA.
Sebastian Loketek, head of Bank of America Merrill Lynch investment banking for Argentina, Uruguay and Chile, said the best year for Argentine issuance since 2011 may not be over yet. Three or four provincial and corporate debt sales may price before the end of the year for between $300 and $600 million each depending on market conditions, he said in an interview. After a busy first half, issuance has slowed on increased volatility ahead of Oct. 25 elections and instability from the global selloff in commodities spilling over into Argentina.
"There will be market windows to price these deals,” he said. “We are recommending issuers to be ready so they can go as soon as they open. It’s going to be a volatile market from now until the end of the year and elections could be a differentiating catalyst for Argentina.”
BAML’s ranking among bond underwriters has jumped nine levels from last year after doing $2.5 billion of deals this year, according to data compiled by Bloomberg. Loketek said there’s been increased interest from so-called “real-money accounts,” long-term investors such as mutual funds and pensions, in entering Argentina both through debt markets and mergers and acquisitions.
With Argentina bracing for regime change as president Cristina Fernandez de Kirchner finishes her second term in December, Loketek says the market will start issuing on a larger scale once the government reforms regulations that restrict companies from repatriating profits and when the country reaches a resolution to the decade-long dispute with holdout creditors. The debt market in Argentina could pick up as soon as the second or third quarters of 2016, he added.
While ruling party candidate and front-runner Daniel Scioli is leading opinion polls to replace Fernandez, he has said he would focus his economic plan on promoting more investment and to provide predictability to policy. Opposition candidates Mauricio Macri and Sergio Massa have promised to lift currency controls within the first 100 days.
All three leading candidates have acknowledged the need to settle litigation with hedge funds led by billionaire Paul Singer’s Elliott Management in order to regain access to international capital markets.
"A resolution with the hold-outs will have an immediate effect on rates,” Loketek, 44, said. “I am convinced that the situation can be resolved.”
This year, the bank also advised Tulsa, Oklahoma-based Apco Oil & Gas International Inc. on its $427 million sale to Argentina’s Pluspetrol SA and worked with Caxias Do Sul, Brazil-based Lupatech SA on the sale of its Argentine assets to Sophia Capital for $22 million. In July, BAML also advised Colombia-based Almacenes Exito SA on the purchase of grocery chain Libertad as part of a $1.8 billion deal with Casino Guichard Perrachon SA.
Loketek also sees the market for initial public offerings recovering in the year ahead, with the most potential for companies in the financial industry followed by infrastructure and energy. There hasn’t been an Argentine IPO since technology company Globant SA went public in July 2014.
"It’s key that the IPO market starts out strong, with the right companies -- those of a reasonable size and leaders in their industry,” he said. “There are some companies in Argentina that have the ability to open the market, we believe they will generate significant investor interest and we’re encouraging them to go."