Argentina Backs Off $1 Billion Global Bond Sale Plan After Surge in Yields
Argentine Economy Minister Amado Boudou said last week’s jump in bond yields may prompt the government to shelve plans to sell as much as $1 billion of bonds, its first international offer since defaulting in 2001.
The government aimed to price new 8.75 percent dollar bonds due in 2017 on May 14, part of its proposal to restructure $20 billion of defaulted debt left out of a 2005 settlement. Any sale would set a benchmark rate and isn’t needed to raise funds, Boudou said at a press conference last night in New York.
“If the conditions are not acceptable to our country, we won’t do it,” Boudou said. “Argentina can change the deadline. We can postpone it because it is a very complex week.”
Argentine bonds tumbled last week, pushing up the yield on dollar bonds due in 2015 by 236 basis points, or 2.36 percentage points, in three days as concern that Greece’s financial crisis would spread reduced demand for riskier assets. The securities rallied as European leaders unveiled an almost $1 trillion bailout plan, cutting yields by 166 basis points since May 7 to 12.55 percent.
The government faces a financing gap of about $4 billion this year and is drawing on central bank reserves to meet those needs, Eurasia Group analyst Daniel Kerner wrote in a report from New York last week. Boudou, 47, said there is no financial need for the bond sale.
“For us, this is basically a symbolic act,” he said. “The goal is to have a benchmark for a security issued in the market after many years. It doesn’t have a fiscal goal.”
Boudou, in New York to meet with creditors ahead of today’s deadline for institutional investors to tender their defaulted bonds without penalty, said the government is convinced its restructuring proposal is “the last opportunity” for investors.
Argentina officials say a settlement with remaining creditors will help the country regain access to international credit markets and restore credibility among investors nine years after the defaulting on $95 billion of debt. Boudou said in an interview last month that the swap will cut the country’s borrowing costs by a third to about two percentage points above that of neighboring Brazil within a year, opening the door for investment needed to bolster economic growth.
The extra yield investors demand to own Argentine dollar bonds instead of U.S. Treasuries has climbed 124 basis points to 725 basis points since Boudou unveiled the terms of the restructuring offer April 15, according to JPMorgan Chase & Co.’s EMBI+ index. That compares with a spread for Brazilian bonds of 211 basis points.
Argentina’s offer includes securities due in 2033 worth 33.7 cents on the dollar, warrants linked to gross domestic product and past due interest with the 2017 bonds. The government didn’t offer to include past-due payments on the GDP warrants, and said it was considering a concurrent sale of $1 billion in additional 2017 bonds as part of the exchange.
The government plans to close the offer June 7.
“The focus is in the swap,” Boudou said last night. “For us, it is very important to turn the page of the default and end this story for good.”
Stone Harbor Investment Partners turned over “significantly less” of its defaulted Argentine bonds than it initially planned because the government’s offer was worse than the firm expected, fund manager Jim Craige said yesterday.
Stone Harbor exchanged less than 20 percent of its holdings after selling “a lot” of them in the secondary market in the run-up to the swap, Craige, who helps manage $12 billion in emerging-market debt, said in a telephone interview from New York. He said Stone Harbor will hold on to some of the defaulted bonds in a bid to get better terms later. He declined to say how much of the debt Stone Harbor held before the exchange.
“It is a bad strategy,” Boudou said. “We are convinced this will be the last opportunity because there will be a level of acceptance that will allow the end of this episode.”
Italian consumer group ADOC said May 3 that a meeting with Boudou in Rome offered “new hopes” for Italian small investors and that the Argentine government is “open” to the possibility of fully reimbursing small investors. Italy is home to holders of nearly a third of the outstanding bonds.
Argentina’s offer -- as measured in net-present value terms -- is worth about 45.5 cents on the dollar for institutional investors, according to RBS Securities Inc. debt strategist Siobhan Morden. The value of the 2005 exchange was 59.63 cents on the dollar, Credit Suisse Group AG said.
Boudou said the country is in better shape since the default even though investors are shunning the country.
“When we were the best grade, it was bad for us,” he said. “Now that we are ugly, dirty and bad, we’re not doing as bad. The Argentine policy is not made to please Wall Street and the world. It is made so that Argentines can live a little better.”