On Wednesday, Argentina will issue local-law bonds in U.S. dollars for the first time since 2018. Economy Minister Luis Caputo stated that the goal for the new bond, called BONAR 2029N, is to rake in “US$1 billion with an interest rate under 9%.”
The bond will mature in 2029 and pay a 6.5% coupon annually. The goal is to bring in funds to face the US$4.2 billion in debt maturing in January. The expectation is that these bonds, issued under Argentine law, will be a precursor to a return to the international bond market.
The government also approved additional measures in order to entice certain entities to take part in the tender. Via a decree published in the Official Gazette, the government authorized insurance companies to take part in dollar operations using public bonds if they use them to obtain other public bonds in foreign currency.
What the market thinks about Caputo’s goals During a talk at a financial firm, Economy Minister Luis Caputo said he hopes to raise US$1 billion at a rate below 9%. He also stated that Argentina has the potential to “greatly reduce its country risk.”
“I think it has a chance,” said Andrés Reschini, from financial firm F2 Soluciones Financieras. He added that it will be important to see the supply as well as the cut-off rate, because “that will be an important signal for the market.”
According to Juan Manuel Franco, chief economist at Grupo SBS, the amount is “feasible.” He added that they might look to cut the rate below 10% in an attempt to anchor expectations.
Analysts from finance firm Max Capital valued the bond at US$86.7, with a 10.7% yield to maturity after adjusting for local law and taking into account the default probability structure. They added the government would seek to place the bond at a rate below 10%, but that current default probabilities make that “challenging.”
Regarding the new regulations, the broker added that they could allow local insurance companies to “exert pressure,” but that the marginal investors are offshore and local corporate investors who “have no additional incentive.”
As a conclusion they considered the development a positive way of “testing the market,” adding that the government could consider regulatory benefits for local investors in order to increase demand and reduce yields.
Originally published in Ámbito