Banco Macro has issued a $150 million 30-year non-call 10 bond under the new laws, which permit hybrid instruments such as these to be considered as part of the tier 1 capital that banks must hold. Ordinarily a bank would have to use its equity to meet this regulatory requirement; permitting banks to use hybrid instruments as well allows them to raise cheap capital while offering investors a substantial pick-up over an issuer’s straight bonds.
“One of our challenges as we seek to re-establish a sound financial system [in Argentina] is to ensure that banks have a means of delivering long-term credit in a secure way,” says Martin Castellano, chief adviser to the governor of the Central Bank of Argentina. “The regulations under which banks can issue tier 1 capital are necessarily quite strict: they offer a pragmatic trade-off between fostering long-term finance and ensuring the safety of the financial system.”
Restrictions
Argentine banks looking to follow Banco Macro’s lead will have to comply with these restrictions, which include a maximum maturity of 30 years, a minimum call date of five years after issuance and the use of only one step-up in the structure.