Argentina’s First Bond Flop Shows Traders Choosy Despite Binge

  • Celulosa Argentina canceled $150 million debt sale Wednesday
  • Country is the biggest issuer in emerging markets in 2016

Bond investors are showing their fervor for Argentina has limits.

On Wednesday, a tissue and paper maker called Celulosa Argentina SA became the first borrower from the country to cancel an international debt sale this year. A day before, the company cut the size of the offering by almost half to $150 million and investors demanded it pay a yield of 10 percent for the seven-year notes, said a person familiar with the deal, who asked not to be identified because the information is private.

The flop is a reality check for borrowers after President Mauricio Macri’s post-election policies caused investor confidence to surge. Argentina’s government, provinces and companies have raised almost $25 billion selling bonds overseas this year -- the most in emerging markets -- after Macri ended a decade-long battle with creditors and lifted currency controls. Another test for Argentina’s corporate bond market came Thursday as lender Banco Galicia, transportation company Clisa and oil producer Petrobras Argentina were all able to raise money in the bond market.

“There are many options to choose from and just a limited amount of resources to put to work so investors are having the opportunity to be particularly selective,” said Rafael Elias, the head of emerging-market strategy at Cantor Fitzgerald. “They will tend to go for bigger companies and larger issues even if they have to sacrifice a couple of hundred basis points in exchange for liquidity and scale.”

Celulosa Argentina declined to comment on the debt sale or future plans beyond its filings to the local regulator on Wednesday.

The company, based in Capitan Bermudez in the province of Santa Fe, has earnings before interest, taxes, depreciation and amortization that are less than $100 million, according to Elias. The small size of the bonds would have also made it harder to trade the notes in the secondary market, he said.

The average yield on bonds from Argentine companies is 6.9 percent, according to an index compiled by JPMorgan.

Other companies are already in line to tap the global bond market, with JPMorgan Chase & Co., the top underwriter in the country, predicting sales will increase by $5 billion before the end of the year. On Thursday, Banco Galicia sold $250 million of notes to yield 8.25 percent, Petrobras Argentina raised $500 million at 7.5 percent and Clisa sold $200 million of bonds at 9.75 percent, according to data compiled by Bloomberg.

“There are so many companies and provinces preparing to tap markets that investors can afford to choose,” said Rafael di Giorno, a director at Proficio Investment in Buenos Aires, which owns shares of Celulosa Argentina. “At the end of the day, Celulosa is a small business and the debt size was very large compared to its size. Still, 10 percent yields are high and it’s a prudent decision from its management to wait for funding at better rates.”

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