Argentina: Blejer credits Macri administration for Hipotecario’s global local currency bond

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By:
Rob Dwyer
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Former adviser to Macri’s opponent in the presidential election endorses macro-economic progress; level of corruption in previous administration a ‘shocking surprise’.


Daniel Scioli poster-R-600
Presidential candidate Scioli promised to send Hipotecario's Blejer to be
Argentina's ambassador to the UK


Mario Blejer, vice-chairman of Banco Hipotecario, says his bank’s recent local currency-denominated international bond transaction was a display of confidence in the country’s macro-economic management.

Blejer – who participated in the New York road show – says the bank upsized the size of the deal from $300 million-equivalent to $400 million-equivalent on the back of $570 million in orders.

As well as displaying confidence in the Argentina’s progress towards economic and financial normalization, the local currency transaction will provide non-exporting companies vital sources of liquidity from the international markets without incurring FX risk.

The deal’s bookrunners Deutsche Bank and Santander brought the deal in early October and they opened with initial priced thoughts of between 250 basis points and 275bp over the Badlar rate and then tightened to 250bp – pricing at par.

“It priced well – inside that of a similar recent transaction from YPF,” says Blejer. “But we probably wouldn’t have been able to get it done without a clause that puts a floor on the interest rate at 18%.”

The deal priced with a Badlar rate around 26% and the investors demand for the floor points to expectations that the Argentine government and central bank are winning the battle to tame inflation. 


In the 1990s, there was a corruption scandal at the Pentagon. They were found to be buying $20 hammers for $500. But at least they delivered hammers – and they were pretty good

 - Mario Blejer, Banco Hipotecario

The central bank is about to officially adopt an inflation-fighting regime in 2017 and, although its target for next year is going to be tough – of between 12% and 17% – the insertion of a floor of a combined yield of 18% shows investors in the three-year deal think it could fall quickly.

Blejer notes that should the Badlar rate fall significantly lower than 15.5% during the next three years, then the bank can simply redeem the notes.

His belief that the deal represents confidence in the bank’s macro-economic performance is backed up by recent results.

Loan growth to the private sector increased by 14.7% in the quarter and 9.9% year-on-year, but with annual inflation of around 40% this is sharply negative in real terms. Deposits actually decreased, by 11.5% in the quarter and 3.4% year-on-year.

The bank is 60% state-owned – so has quasi-sovereign risk status. However, it is controlled by the private sector due to the design of its privatization in 1997, which gave every private sector share three-times the voting rights of the state-retained shares.

The bank’s business model has historically been mortgages, and should inflation fall then the bank sees opportunity to grow rapidly. Blejer predicts the bank could increase its mortgage portfolio by between 500 and 600 a month by the end of 2017, up from a monthly rate of 200 new mortgages a month today.

New metric

Blejer, who spoke to Euromoney during the Felaban meetings in Buenos Aires in November, says the introduction of a new metric – the UVA – will help develop the mortgage market in Argentina.

Introduced in June, the UVA is a metric that is linked to wages rather than retail prices – and is therefore a better metric for incorporating the ability to repay mortgage loans. Unemployment is still a risk – but the bank’s non-performing loans remain low (at 2.1%) and with the consensus forecast of GDP growth of 3.5% in 2017, economists expect that unemployment will soon start to fall.

“The government is doing a good job – I am supporting them,” says Blejer, who was one of the leading economic advisers to Daniel Scioli, the candidate defeated by president Mauricio Macri in last year’s election.

Blejer said he had favoured a more staggered reform process had Scioli won, but thinks the current administration deserves praise.

“The government has taken over from a very bad situation,” he says. “There are tremendous imbalances in the economy. There is lack of balance in the fiscal accounts, trade accounts, capital accounts and large distortions in relative prices.

“They are trying to correct everything at the same time – very forcefully – and at the same time trying to reduce inflation by half.”

However, Blejer thinks the government did make a mistake regarding the communication of its strategy, saying: “From the point of view of the public, you need to explain how you can be aiming for lower inflation when they are also increasing prices.”

Blejer says he had been promised he would be appointed Argentina’s UK ambassador had Scioli won the presidential election.

However, the extent of the corruption being revealed in the previous administration since Macri assumed power has shocked him. “I doubt I would have been working with him if I had known the degree of corruption – proportionally it is even worse than in Brazil,” he says.

“They moved corruption from the micro to the macro. Before it was about sums that were 20-times salary but today we are counting in [basis] points of GDP. And the worse thing is that they didn’t even deliver.”

He adds: “I was in Washington in the 1990s [working for the IMF] when there was a corruption scandal at the Pentagon. They were found to be buying $20 hammers for $500. But at least they delivered hammers – and they were pretty good! Here they are charging five-times the cost of a bridge, they didn’t build it and now it still needs to be done.”