by Rob Dwyer
Recent international transactions for Argentine issuers hint at the huge potential appetite for equity and debt capital markets deals from the country next year, according to bankers in New York. With presidential elections in October due to bring in a change of government, international investors are readying themselves for a possible shift towards market-friendly policies and a jump in deal flows.
In April YPF sold a $1.5 billion 2025 bond – tripling the size on strong demand. The Argentine oil company priced at 99.097 to yield 8.625% – inside price guidance of 8.75% but still a hefty return in a world starved of yield. In February, the City of Buenos Aries had also sold $500 million of 2020 bonds that were priced to yield 8.95% – again well inside price guidance.
“The two Argentine issuers that are compliant with their coupons are paying about 8.5% to 9%; I think investors see that this is the end of an era for Argentina,” says one New York based banker responsible for Latin American DCM origination. “Whoever comes next is going to be better and will probably lead to a rally that will take Argentina into line with countries like Bolivia and Paraguay – so that’s potentially 200 basis points [for investors] right there.”
William Mcarthur, Latin America equity capital markets director at Bank of America Merrill Lynch, says interest in Argentina among international investors is increasing ahead of the elections. BAML held a conference that was focused on Argentina, across the equity and fixed income product lines, which attracted more than 60 accounts.
Where’s the trigger?
Mcarthur says companies in the country are already mandating international banks to take deals public. “The question remains: what will trigger deal flow in Argentina?” says Mcarthur. “Will investors react once they see a change in policy from the new government or will they wait for macro data points to improve? I think the former scenario is more likely.”
Santiago Gilfond, head of Latin America equity capital markets at Credit Suisse, says: “We could have seen some specific deals earlier in the year when there was a lot of enthusiasm about the most market-friendly candidate [Mauricio] Macri gaining momentum – there are many investors getting smart on the evolving situation. However, investor appetite for a broader market upturn remains to be seen.”
For investors, the critical fixed-income question will be how Argentina rallies from beyond the 7% threshold to levels comparable with countries like Brazil. Bankers say that will need better policies, execution and an improvement across all variables. That will take time.
Technicals will also come into play, with Argentina needing around $15 billion to $20 billion to restructure its total defaulted debt – which, even with a strong improvement in risk perception, will require a lot of financing and restrict the amount of liquidity available for new private-sector issuance, at least in the short term.
“My view is optimistic,” says one DCM banker. “With Argentina returning to the main indices you will see investors who haven’t invested in the country for more than 10 years returning. You should also see a slow migration from new investors. I suspect that the pent up demand for Argentina is so high that it should enable the country to find capacity of $20 billion.”