Argentina’s YPF Siphons Pesos From Rivals in Debt Deluge
Argentina’s biggest energy company sold 3.6 billion pesos ($736 million) yesterday in its largest ever sale in the local debt market. The amount pushes YPF’s issuance to 9.4 billion pesos this year, more than any Argentine issuer has ever borrowed locally, according to data compiled by the Open Electronic Market. YPF is the only issuer to account for more than half of the nation’s corporate bond offerings.
With a U.S. legal battle over repayment of debt from the nation’s record $95 billion default driving up borrowing costs, overseas creditors lending to Argentine companies now demand more than twice the 4.28 percent average in emerging markets. That’s prompted YPF to inundate local debt investors as it tries to finance a $37 billion expansion, sapping demand from companies such as renewable energy company Genneia SA.
“I light a candle every night in the hopes that YPF sells debt abroad,” Alejandro Ivanissevich, Genneia’s chief executive officer, said in an interview yesterday in Pilar, 26 miles (42 kilometers) northwest of Buenos Aires. “YPF should open the waters for the medium and small companies to issue overseas rather than sweeping up all the local funds.”
Genneia shelved its plan to sell 150 million pesos of bonds last month after investors demanded yields of 21 percent, Ivanissevich said. Plans to offer dollar debt abroad earlier this year were also suspended after borrowing costs jumped to 13 percent, he said.
Alejandro Di Lazzaro, a spokesman at Buenos Aires-based YPF, declined to comment on whether its local debt issuance has hindered smaller companies from selling bonds.
YPF sold yesterday $258 million of dollar-linked bonds maturing in 2016 to yield 6.25 percent and 2.3 billion pesos of bonds at a rate of 475 basis points over the benchmark badlar rate maturing in 72 months, according to a filing today on the regulator’s website. The badlar, or the rate banks pay for 30- day deposits of more than 1 million pesos, was 15.31 percent yesterday.
YPF shares fell as much as 6 percent to 97.80 pesos, their biggest intraday drop since Nov. 16, before dropping 3.4 percent at 2:24 p.m. in Buenos Aires. The company sold less than its minimum target at its bond auction.
While Argentine companies, including YPF, have sold 17.9 billion pesos of debt in the local market, only three issuers were able to raise financing abroad. The $663 million sold by Buenos Aires city, the province of Salta and Empresa Distribuidora de Electricidad de Salta is dwarfed by the record $69.6 billion sold this year in Latin America.
Average yields for Argentine government debt have surged 146 basis points, or 1.46 percentage point, to 12.07 percent since Oct. 25, a day before a U.S. appeals court upheld a ruling ordering the South American country to pay creditors of defaulted debt when it makes payments on performing debt.
YPF hasn’t sold debt in overseas bond markets since the government expropriated it from Madrid-based Repsol SA. YPF last sold dollar bonds abroad in 2010 when it raised $70 million, according data compiled by Bloomberg.
“It’s dramatic that YPF used to get international financing and now it has to go to the local market,” said Federico Sturzenegger, the president of Banco de la Ciudad de Buenos Aires, who worked for YPF before Repsol bought it in 1998 and became a consultant for the company. “It’s taking up resources which would have been available for smaller companies, loans and mortgages. It’s a crowding out process. This means less investment and growth.”
On Oct. 23, Fernandez said insurers would be forced to raise their investments in infrastructure projects to 7 billion pesos next year from the current 88 million pesos.
Insurance companies, which hold 64 billion pesos, must invest 5 percent to as much as 30 percent of their funds in such projects, she said.
Investments are determined by a committee led by Deputy Economy Minister Axel Kicillof, Finance Secretary Adrian Cosentino and Commerce Minister Guillermo Moreno. The committee’s first authorization was for YPF on Dec. 14.
Buenos Aires-based Genneia wasn’t selected as a priority investment, CEO Ivanissevich said.
YPF is trying to boost production at the Vaca Muerta formation in southern Argentina. Named “Dead Cow,” it holds the world’s third-biggest shale gas deposits, according to the company.
The energy company will finance 20 percent of its $37 billion five-year investment plan, or about $7.4 billion, with debt, Chief Executive Officer Miguel Galuccio said in August.
Former Economy Minister Roberto Lavagna, who was in charge of the country’s debt restructuring in 2005, says that state- owned entities are benefiting at the expense of smaller privately owned companies in the local bond market.
“The state is issuing debt at rates the private sector can’t match,” he said in a Nov. 13 interview at his office in Buenos Aires.
Currency controls that Fernandez imposed since her re- election in October 2011 to keep dollars from fleeing the country are still flooding the economy with pesos and reducing investment alternatives to deposits and local peso bonds, according to Leonardo Chialva, a partner at Delphos Investment in Buenos Aires. That should help credit-worthy issuers get the debt financing they need, he said.
“There’s so much liquidity in the market that I don’t see a high risk of YPF crowding out other companies,” he said.
The extra yield investors demand to hold Argentine government dollar debt instead of Treasuries fell 12 basis points to 993 basis points, according to JPMorgan Chase & Co.’s EMBI Global index.
The peso has fallen 12 percent this year, the biggest drop among major Latin American currencies tracked by Bloomberg, to 4.8963 per dollar.
The cost of protecting $10 million of Argentine government debt against non-payment with five-year credit-default swaps fell nine basis points to 1,435 basis points, according to data compiled by Bloomberg.
Ivanessevich, the 51-year-old head of Genneia, says reducing borrowing costs has become an obsession as he looks to build a $500 million wind farm in the southern city of Puerto Madryn. Ideally the company would sell 12-year dollar bonds yielding between 6 percent and 8 percent, he said.
“This will only happen once YPF is allowed to issue overseas,” Ivanessevich said. “They are drying up the market” for local bond sales.