Argentina May Offer as Much as $8 Billion of Tax-Amnesty Bonds

Argentina plans to sell as much as $8 billion in bonds that pay little to no interest as one of the options available for tax evaders seeking to repatriate money held abroad.

Argentina will offer as much as $3 billion of three-year bonds that pay no interest and $5 billion of notes due in 2023 that pay 1 percent to tax evaders with undeclared assets overseas, according to the official gazette. That compares with an interest rate of 6.3 percent on overseas debt due in 2026. Argentines who want to come clean can also choose to pay taxes and penalties on the cash held abroad instead of buying bonds. The government may increase the size of the three-year bonds if it’s oversubscribed, but won’t reopen a new tranche of the seven-year bonds.

The securities will be sold directly to individuals through the country’s tax agency. The three-year notes can never be sold on a secondary market, while holders of the seven-year bonds won’t be able to trade them before 2020. Those rules eliminates the risk that the new debt will flood the market for Argentina’s overseas obligations, according to Rafael di Giorno, a director at Proficio Investment in Buenos Aires.

"It’s not a traditional bond issuance, but rather it’s a mechanism for receiving the tax proceeds," he said. "In the long term, if more people join the amnesty plan, bondholders will benefit because that will broaden the tax base and the country will have more fiscal resources."

President Mauricio Macri’s government kicked off an amnesty program this week aimed at persuading Argentines who’ve stashed as much as $500 billion abroad to declare their assets and pay taxes. Macri said in July that if $25 billion to $30 billion is declared, the government won’t need to sell more debt abroad.

The amount declared could be higher, with BNP Paribas analysts estimating $40 billion will be reported and potentially as much as $60 billion. The seven-year bond option is likely to attract the majority of interest out of the repatriation options, as rules allow tax evaders to spend one-third of the money they bring in from abroad on the bonds and keep the remainder to use as they wish, they added.

The government has already committed to spending $5 billion in proceeds from the amnesty plan to settling government debts with pensioners.