Argentina's Top Bond Underwriter Sees Equity Market Revival

  • Pampa Energia raised $86 million by issuing additional ADRs
  • Company may use funding to develop natural-gas production

Argentina’s dormant equity market may be coming to life after Pampa Energia SA issued additional American depositary receipts just days after Mauricio Macri won the presidency, according to Bank of America Corp.

The nation’s largest electricity holding company raised $86 million on Dec. 1 by issuing additional ADRs at a price of $21.50 each, said Sebastian Loketek, managing director and head of the bank’s unit in Argentina, which was the sole manager of the deal. The transaction has major implications for the country’s stock market, he said.

“The Argentine equity market has very limited depth,” said Loketek, who has led Bank of America to the top of Argentina league tables for bond sales this year. "Investors who want to enter Argentina have very few options. We needed companies to start taking a chance to go to market, and it’s finally started to happen."

Pampa’s plan to exercise a call option was announced the day after Macri won the presidency in a second-round election. Macri, a two-time mayor of Buenos Aires, has vowed to make market-friendly reforms including removing import restrictions, lifting currency controls and letting the peso float freely on his first day in office next month. The president-elect has already tapped former JPMorgan Chase & Co. executive and ex-central bank president Alfonso Prat-Gay to become finance minister.

"Macri’s victory has no doubt put the market in a good mood,” Loketek said. “I saw a lot of optimism during meetings with investors the last few days and people are really hopeful on what’s happening while also understanding there are challenges ahead."

South America’s second-largest economy has had a largely inert equity market over the last few years. Given that it’s hard for foreigners to invest in the local Merval index due to currency controls, trading is much more liquid in ADRs of Argentine companies abroad. There hasn’t been an Argentine initial public offering since technology company Globant SA went public in July 2014.

The new ADRs, which represent 22.5 percent of the company’s capital, may be used to develop the company’s natural gas production business concentrated in its Petrolera Pampa unit, Loketek said.

The company is expected to release a regulatory filing to announce the results.

Even though Pampa’s ADRs tumbled the most on record after announcing it was exercising the call option on warrants, the shares have rallied 108 percent this year to $20.84.

Hedge funds were the main buyers in the deal, Loketek said. He noted that while long-term investors such as mutual funds and pensions have demonstrated interest in Argentina’s debt, they have not yet turned toward equity.

Last week, Loketek also helped manage a $200 million bond sale by Banco Hipotecario SA, a mortgage bank, in just the second Argentine corporate-debt sale this year.

“Immediately after the elections, we came out with two transactions; two types of deals that we haven’t seen in Argentina in a really long time,” he said. “The market is opening up and expecting more of these types of deals.”

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