Argentine Debt Exchange Helps Cover Financing Needs (Update2)
By Drew Benson and Lester Pimentel
Jan. 29 (Bloomberg) -- Argentina may have lined up enough financing to cover its budget needs through 2010 after creditors agreed to extend maturities on 15.1 billion pesos ($4.3 billion) of debt, Credit Suisse Group AG and Barclays Plc said.
Ninety-seven percent of locally based holders of the so- called guaranteed loans accepted the offer to take new five-year peso bonds, President Cristina Fernandez de Kirchner said yesterday. The exchange will reduce the government’s 2009 debt payments by 5.4 billion pesos, Cabinet Chief Sergio Massa said.
Argentine bonds rallied this month, sending benchmark yields to a three-month low, helped by speculation that the debt swap will enable the South American country to avert its second debt default this decade. Argentina issued the guaranteed loans -- which were initially backed by revenue from a financial transactions tax -- in a 2001 exchange that sought unsuccessfully to stave off the $95 billion default that year.
“Argentina has solved its rollover problem for this year and maybe the next,” said Igor Arsenin, an emerging-market strategist at Credit Suisse in New York. “They will muddle through. There’s still quite a bit of upside.”
The price on the government’s 8.28 percent dollar bonds due in 2033 has climbed to 34.75 cents on the dollar today from 32.25 cents on Dec. 31, according to JPMorgan Chase & Co. The yield dropped to 21.66 percent from 32.25 percent. The bonds had sunk to 22.5 cents, the lowest since they were issued in a 2005 debt restructuring, on Oct. 27 after Fernandez said she’d nationalize the pension funds. They traded at 74 cents at the end of August.
While the pension seizure hurt investor confidence, it also helped Fernandez cobble together financing by giving her access to more funds. The pensions held almost $30 billion in October.
“The main danger was a dent in confidence,” Arsenin said. “In a more narrow sense, it’s been positive. It has ensured flexibility in their short-term financing.”
Arsenin said the 2033 bonds may rally to 40 cents.
Argentina has been shut off from international markets since the 2001 default because some bondholders rejected the government’s restructuring offer and filed lawsuits in New York in a bid to recoup their money.
The government will extend the guaranteed loans swap offer next month to the 3 percent of locals who rejected it as well as to international holders of the securities, Massa said.
Carola Sandy, a New York-based economist with Credit Suisse, said in a report today that she expects participation from foreign investors to be “relatively high” because the guaranteed loans are “very illiquid instruments.”
In all, about $4 billion of the $12 billion outstanding of guaranteed loans was set to mature this year, according to Credit Suisse. Sandy estimates that yesterday’s swap will reduce Argentina’s principal payments by as much as $1.5 billion a year through 2011.
“This is the most important voluntary exchange in the history of Argentina,” Fernandez said at a ceremony last night at her residence outside of Buenos Aires.
Argentina’s financing needs climbed to $18.4 billion this year from $4.7 billion in 2008 as a six-year economic expansion fueled by commodity exports faltered amid the global credit crisis, according to Royal Bank of Scotland calculations. Growth will slow to 2 percent this year from an estimated 6.7 percent in 2008, according to the median forecast in the central bank’s most recent survey of economists. Growth topped 8 percent every year from 2003 to 2007.
The new five-year bonds will pay an interest rate of 15.4 percent in the first year and 2.75 percentage points over the Argentina’s Badlar interbank rate after that, Massa said.
The swap “sends the signal that the authorities will look for market-driven transactions rather than moving straight into unfriendly restructurings,” Barclays analysts Guillermo Mondino and Donato Guarino said in a report yesterday. They recommend investors buy Argentine dollar bonds due in 2013, known as Bonars.
To contact the reporter on this story: Drew Benson in Buenos Aires at Abenson9@bloomberg.net Last Updated: January 29, 2009 12:27 EST