HSBC Still Sees Hunger for Argentina After $30 Billion Sold

  • Country has ‘captured’ fraction of potential financing: Mato
  • Nomura says risk rating needs to improve for bigger flows

Argentina’s borrowing costs may not be falling as fast as some had predicted when President Mauricio Macri ended a dozen years of populist rule. But HSBC believes there’s still plenty of appetite for the country’s debt.

Sovereign, provincial and corporate issues have totaled more than $30 billion this year after Macri paved the way for a return to capital markets by settling a decade-long dispute with creditors over defaulted bonds. South America’s second-largest economy has barely explored the tools at its disposal to access financing, according to Gerardo Mato, chairman of global banking in the Americas at HSBC.

“Argentina has captured less than 10 percent of what it could eventually capture,” Mato said at a conference in Buenos Aires on Monday, mentioning perpetual bonds and sovereign-wealth funds as instruments Argentina can tap. “There’s lots of road still to travel. In Argentina, we haven’t even begun to negotiate or talk about those kinds of things.”

While only $300 million was issued in August, another $1.8 billion of peso and dollar-denominated debt is due to be issued before the end of the year. The province of Santa Fe is seeking to sell $500 million in September, while Tierra del Fuego also is looking to raise $150 million in international markets, according to local media. Oil companies YPF SA and Pampa Energia SA may issue a combined $1.25 billion, while Irsa has approval to sell $299 million on Thursday.

Appetite for Argentine bonds may be reaching its limit among emerging-market investors, however, and to capture other parts of the market the country would need to improve its risk rating, said Siobhan Morden, head of fixed-income strategy at Nomura Securities International Inc.

“With its debut re-entry, Argentina has arrived and it has more name recognition, but to really get crossover flow I think it needs a higher rating,” Morden said by phone from New York. “You only really get crossover flow and huge appetite when you get to investment grade.”

The spread between Argentine and Brazilian yields narrowed to 76 basis points in June before widening again to 140 basis points on Wednesday. Argentina’s credit rating was raised in May to B- from selective default by S&P Global Ratings, which cited the country’s payment of $2.7 billion of past-due interest on bonds in default since July 2014.

That Argentina still lags behind Brazil in spite of the larger country’s economic crisis and a corruption scandal augurs well for the future, HSBC’s Mato said.

“The cost of financing is the lowest in 60 or 70 years; however if we compare with Brazil in the middle of its Car Wash scandal, it’s still 150 basis points behind,” he said. “There’s still plenty of room to go.”

— With assistance by Carolina Millan

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