UBS Trump Warning Ignored as Argentine Province Plans Debt Sale

  • UBS, Puente advised to postpone sale to February or March
  • La Rioja aims to sell $200 million as soon as late November

Argentina’s province of La Rioja is forging ahead with its first international bond sale, despite UBS AG’s advice to postpone it amid market volatility in the aftermath of Donald Trump’s election.

The olive-growing province in Argentina’s northeast, which aimed to sell $200 million of bonds in late November or early December, was advised Wednesday by underwriters UBS and Puente Hnos SA to delay the sale to February or March amid a rout in emerging markets following Trump’s win, La Rioja Finance Minister Ricardo Guerra said in an interview. The province decided to go ahead with the original timing, confident that the proposed bonds, backed by revenue from a wind farm, will lure investors.

"The banks argued that that would be the minimum reasonable time to evaluate market behavior and the U.S. president-elect’s next steps, especially his choice of his government team, which is now creating some anxiety," Guerra said. "Issuing next year is Plan B, but we’re now redoubling our efforts to make it in time for late November."

UBS’s and Puente’s press departments declined to comment.

The minister said he’s optimistic that the sale will be attractive because the 50 megawatt wind farm that backs the debt gets its revenue in dollars, reducing currency risks. The province wants to sell seven-year bonds to yield between 7.5 percent and 8 percent. Guerra said he won’t support the sale if investors demand yields above 8.8 percent.

The province, which expects to get federal government approval for the sale in the next days to weeks, also met representatives of the Finance Ministry this week, who didn’t make a recommendation about timing, Guerra said.

Renewable Bet

The emphasis on renewable energy by the province is part of a nationwide bet to create jobs, drive infrastructure investment and increase energy production to lower fuel imports and support a strained power grid. The government auctioned over 1,000 megawatts of electricity projects Oct. 7, including the wind farm La Rioja looks to finance. 

La Rioja would be ready to produce 200 megawatts in two years, or 80 percent of the province’s energy consumption, and has areas with potential for an additional 200 megawatts, Guerra said. The province is also exploring pursuing the production of as much as 400 megawatts in solar energy and to develop thermal energy in the medium term.

"The province is immerse in a strong development project to activate the economy, and we believe that our plan to back the bonds with wind energy returns will set us apart, " Guerra said. "We’re in the periphery of the main productive areas in the country, so we’re working to add value to our resources through renewable energy."

La Rioja would be the ninth Argentine province to sell debt this year. Argentina’s province of Entre Rios, which finished an international road show last week, postponed a planned debt sale “due to market turbulence on U.S. elections,” Entre Rios Governor Gustavo Bordet told local paper El Diario Nov. 4.

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