NEW YORK, April 21 (IFR) - Argentina's Bonar 8.75% 2024s slipped close to a point Tuesday morning as the government announced a local sale of the bond to try to get round US restrictions on its market access.
The up to US$500m sale - which starts today through a local auction without banks - is the sovereign's latest attempt to regain a foothold in the capital markets.
"This will be a test on whether this is a market Argentina can issue in and whether there is any legal backlash," said Siobhan Morden, head of Latin America strategy at Jefferies.
The Bonar 2024s extended recent losses after the announcement, sinking to around 105.00 in anticipation of more supply - more than two points down since the 107.85 level seen last week.
Argentina was forced to shelve a US$2bn-plus sale of the Bonar 2024s in March when bookrunners Deutsche Bank and JP Morgan backed away from the deal.
They retreated after a US judge ordered them to produce documents and witnesses on the deal, in yet another standoff between the sovereign and US Judge Thomas Griesa.
An injunction from Griesa last year effectively stopped Argentina from making payments on nearly US$30bn in restructured debt unless it made holdout investors whole as well.
The US dollar-denominated Bonar 2024s, however, were seen as outside the reach of US courts, as they were not part of the 2005 and 2010 restructurings contested by holdout creditors.
They are also governed by Argentine law.
If the new local auction is successful without legal disruptions, that may open access for the sovereign to sell paper to international accounts, many of which remain keen to gain exposure to Argentina risk on hopes that elections in October will usher in a more market-friendly government.
"It will be positive to the extent that Argentina can still issue paper," said Jorge Piedrahita, CEO of broker Torino Capital, who noted that foreign accounts have expressed interest in the auction.
"It is clear also that holdouts do not have the capacity to interrupt an issue like this."
But the extent of foreign participation in the auction is important if the government wishes to raise dollars without eating into foreign reserves. That's because local investors will have to access dollar deposits to buy the bond.
"Gross reserves reflect private sector bank deposits," said Morden at Jefferies. "If you want to finance without reserve declines, you have to attract foreigners." (Reporting by Paul Kilby; Editing Marc Carnegie)