Argentina Said to Plan Bond Return to Fund Warrant Buyback

Updated on
  • Country to sell $2.75 billion in 12-year, 20-year bonds
  • Argentina sold $16.5 billion in record debt sale in April

Argentina is returning to the overseas bond market for the second time this year after ending a more than decade-long legal battle tied to its record default.

The country is offering as much as $2.75 billion of bonds and will use the money to buy back warrants issued during debt restructuring in 2005 and 2010, according to a person familiar with the matter who asked not to be identified because the information is private. The $1 billion of 12-year notes are being marketed to yield 6.625 percent while $1.75 billion of 20-year securities may yield 7.125 percent, the person said.

The announcement marks another step in the country’s efforts to erase the legacies of its $95 billion 2001 default after Argentina sold $16.5 billion of bonds in April, an emerging market record, following President Mauricio Macri’s milestone deal with holdout creditors who didn’t take part in the restructurings. Finance Ministry officials told investors after the April sale that the country wouldn’t sell any more international bonds this year.

"At these levels, the bonds are a gift," Rafael Elias, the head of emerging-market strategy at Cantor Fitzgerald, wrote in an e-mail. "It seems they’re pricing the bonds cheap to continue to claim they have strong order books in these volatile times."

The yield on Argentina’s benchmark dollar bonds due 2026 rose 0.05 percentage point to 6.35 percent at 4:16 p.m. in New York. The average yield for emerging-market sovereign bonds with similar maturities is 5.88 percent, according to data compiled by Bloomberg.

The guidance for Argentina’s 20-year note is high compared with the country’s bonds sold in April, according to Cantor Fitzgerald. Yields of Argentina’s longest maturity bonds, due in 2046, were less than 7 percent Thursday, below the yield for the new 2036 bonds. The average yield for dollar-denominated bonds due in about 10 years from countries with bonds similarly rated by Moody’s Investors Service is 7.73 percent.

Argentine companies and provinces have taken advantage of falling yields and high investor demand to sell debt abroad, bringing total bond issuance out of Argentina to more than $21 billion since the deal with holdout creditors. That number is expected to continue rising, with Citigroup Inc. estimating provincial issuance will reach $6.6 billion by the end of the year. Cia. Latinoamericana de Infraestructura and Servicios, a construction company, announced plans to tap the market as well.

"The market in general is in very good shape globally after the Brexit news," said Sergei Strigo, the head of emerging-market debt at Amundi Asset Management in London. Still, “investors will have some concerns about the continuous issuance out of Argentina, not just on the sovereign side, but also on the quasi-sovereign and corporate side. It is a concern for us."

Argentina offered Tuesday to buy back the warrants tied to growth in gross domestic product to save the government as much as $9.4 billion. The warrants, due 2035, trigger payouts when the economy expands more than 3 percent annually and are expected to be a financial burden for the government.

Before becoming finance minister in December, Alfonso Prat-Gay said in a 2014 column for the Argentine newspaper Cronista that the “darn warrants” were the “great fiasco” of the nation’s debt restructuring.

Macri has lured foreign investment by removing most export taxes, cutting currency controls and curbing subsidies.

"We have yet to see an Argentine issue underperform," Elias added in a note to clients. "There is still plenty of cash to be put to work in what undoubtedly, at least from a technical perspective, seems to be the most attractive market in” emerging markets.

The deal is being managed by Bank of America Corp., Credit Suisse Group AG, Deutsche Bank AG and Morgan Stanley.

— With assistance by Isabel Gottlieb, and Daniel Cancel

(Updates with bond yield average for similarly rated bonds in sixth paragraph.)
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