Argentina's $5.9 Billion Bond Payment Triggers Return to Market

  • Reserves sink most in 9 years to $27.7 billion after payment
  • Argentina will sell $1.5 billion of notes due in 2020

Argentina is turning to the bond market to help rebuild its depleted foreign reserves.

The South American country will sell $1.5 billion of five-year bonds in the local market Tuesday, a day after tapping its cash hoard to repay $5.9 billion of maturing notes. The payment cut Argentina’s reserves by 15 percent, the most in 9 years, to $27.7 billion.

With Argentina locked out of international debt markets because of a decade-long dispute with creditors and its commodity revenue plunging, the government has limited options to raise cash. The country may appeal to bond investors betting presidential elections in three weeks will usher in a government that will shore up the slumping economy.

“The idea is to soften the blow from the drop in reserves,” Alejo Costa, a strategist at Buenos Aires-based brokerage Puente, wrote in an e-mail.

A group of Argentina’s holdout creditors led by Elliott Management and Aurelius Capital Management served multiple investors with subpoenas about the country’s auction, according to a person with knowledge of the matter. This is the second time that the creditors have sought information of an Argentine-law bond sale because of the alleged involvement of international buyers.

The funds have previously argued that because bonds due in 2024 were marketed to international investors they should also be covered by an injunction that blocks payments on overseas bonds until holdouts are paid in full.

The Economy Ministry’s press office didn’t return a call seeking comment on the bond sale and reserves.

Economy Minister Axel Kicillof said Oct. 2 the offering will give holders of the 2015 bonds who were repaid Monday a chance to reinvest their proceeds. Yields on Argentina’s local-law dollar bonds due in 2017 have fallen 0.55 percentage point in the past month, more than twice the average decline in emerging markets, according to data compiled by Bloomberg.

The decline in reserves is adding to investor speculation that the new administration, which will take office Dec. 10, will negotiate with creditors led by billionaire Paul Singer’s Elliott Management to regain access to overseas bond markets, according to Barclays Plc strategist Sebastian Vargas. 

U.S. District Judge Thomas Griesa has blocked the country from honoring its foreign debt until the government reaches a settlement with Singer and other creditors from Argentina’s 2001 default.

President Cristina Fernandez de Kirchner calls the investors “vultures” and has refused to comply with the ruling. Front-runner Daniel Scioli and leading opposition candidate Mauricio Macri have both indicated they’d hold talks to end the debt dispute.

“The numbers don’t lie,” Barclays’s Vargas said. “The amount withdrawn from the reserves is vastly superior than the amount that is being issued. It’s only going to compensate the drop in part, not fully. It’s a band-aid to the situation.”

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