Argentine GDP Warrants Plunge as Growth Misses Trigger
Argentine warrants tied to economic growth plunged to the lowest since June after the government revised down 2013 data below a threshold for triggering a coupon payment of about $3 billion.
GDP warrants tumbled 27 percent today to 6.3 cents on the dollar at 5:34 p.m. in New York, according to data compiled by Bloomberg, after the national statistics agency said yesterday the economy grew 3 percent in 2013, below the 3.22 percent trigger. Government dollar bonds rallied as the missed payment will preserve reserves used to pay debt that are at a 7-year low.
President Cristina Fernandez de Kirchner’s government, which last year became the first in the world to be censured by the International Monetary Fund for misreporting statistics, since October has sought to mend relations with global creditors and investors to obtain new financing as reserves dwindle. The government, which unveiled a new inflation index last month to meet IMF concerns, yesterday introduced a new GDP data series using a base year of 2004 instead of 1993, bringing growth figures in line with private estimates.
“This clearly surprised the market,” Siobhan Morden, the head of Latin America fixed income at Jefferies Group LLC, said in a phone interview from New York. Warrant holders “were so used to receiving this perverse subsidy.”
Argentina’s overseas dollar bonds rallied, with the extra yield investors demand to own the debt instead of Treasuries falling 0.29 percentage point to 8.09 percentage points, according to JPMorgan Chase & Co.
Bonds sold under Argentine legislation due 2017 surged 3.5 cents on the dollar to 91.4 cents, the highest on a closing basis since December.
The government in September forecast growth of 5.1 percent. The economy grew 2.9 percent according to estimates by private economists distributed by opposition lawmakers.
Payment for 2013 warrants will be made from the new series and figures will be revised again in June and September, Economy Minister Axel Kicillof told reporters in Buenos Aires.
The government in February unveiled a new national consumer price index that so far has posted inflation at almost three times the average rate it reported in 2013. Consumer prices rose 3.4 percent in February after the government devalued the peso by 19 percent the previous month.
Private economists had questioned the government’s economic data since 2007 when former President Nestor Kirchner changed senior personnel at the statistics agency.
“This is good news for the rest of the market because it reflects the reality” of the economy, Jorge Piedrahita, chief executive officer at brokerage Torino Capital LLC, said in an e-mailed reply to questions. “To spend a couple of billion dollars on a fiction would have been Kafkaesque.”
Seeking to regain access to overseas debt markets for the first time since its record $95 billion default in 2001, Argentina agreed on Oct. 18 to pay five companies the $677 million they were requesting through the World Bank’s arbitration court. Fernandez’s administration in May will begin official negotiations with the Paris Club of creditor nations to settle about $10 billion of debt.
The government also is in the process of reaching a $5 billion settlement with Spanish oil company Repsol SA (REP) for the 2012 expropriation of its 51 percent share in YPF SA, Argentina’s largest company.
“After normalization of the inflation statistics, this is another step toward mending relationships with the international community - particularly the IMF - and regaining some of the lost credibility in the official statistics,” Mauro Roca, a senior Latin America economist at Goldman Sachs Group Inc. wrote in a note to clients today.
Revising growth figures may be used by holdout creditors from the 2001 default as an argument to show Argentina’s lack of willingness to pay and could expose the country to further litigation, Hernan Yellati, head of research at BancTrust & Co., wrote in a report today.
While about 93 percent of creditors accepted losses of 70 cents on the dollar in the country’s 2005 and 2010 debt restructurings, holdout investors, including Singer’s NML Capital Ltd., sued for full repayment.
The new base year means that areas of the economy will have new weightings in the series, national statistics agency director Norberto Itzcovich told reporters. Manufacturing and production of goods gained while agriculture and financial services lost weighting, he said.
The government will publish the full series of revised figures dating back to 2004 in the second half of April, Kicillof said.
It’s too early to assume that warrant holders won’t get paid since a clause in the prospectus stipulates that a change in the base year would require the government to lower the threshold at which the coupon must be paid, said Daniel Chodos, a strategist at Credit Suisse.
“The threshold will have to change, we’ll see to what extent they’ll change or not,” Chodos said by phone from New York. “I wouldn’t jump to conclusions right now.”
The warrants were issued as part of debt restructuring in 2005 and 2010 stemming from the country’s default 12 years ago. They returned 43 percent a year on average between 2006 and 2013.
While the revised growth figures may be negative for warrant holders, the rest of the market will view them positively since it won’t drain reserves further, said Kathryn Rooney Vera, a macroeconomic strategist at Bulltick Capital Markets. Reserves fell $75 million yesterday to $27.06 billion, their lowest level since August 2006.
“It’s like wiping the slate clean,” Rooney Vera said in an e-mailed response to questions. “Inflation numbers, check. GDP numbers many questioned anyway, check.”