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NEW YORK, May 20 (IFR) - If local newspaper reports prove to be true, Argentina's Province of Buenos Aires is all set to launch a new bond deal worth at least US$500m in the next few days.
If it happens, the deal would be the first international bond sale from the province since 2011 and would mark a revival of a similar transaction rumored to be in the works in May of last year.
At the time, however, concerns over Argentina's looming default meant investors were demanding a yield that was well above the province's target.
But despite all this background noise, so far the reaction from market participants about a potential deal from the province has been positive.
"There is appetite for yield and for paper that is not involved in the legal saga," said Jorge Piedrahita, CEO of brokerage Torino Capital in New York.
Investors seem keen to increase their exposure to Argentina and have shown strong appetite for bonds issued by the local governments, which are isolated from the sovereign's legal dispute with holdout creditors.
Earlier this year, the City of Buenos Aires amassed around US$2bn in orders when it sold a new US$500m six-year amortizing bond to international investors, which priced at a yield of 8.95%.
According to the local reports, the province is targeting a yield of below 10% for the new sale.
"If they do a five-year, people would be comparing it with the 2021s which are trading at (a yield of) 10%," said Piedrahita. "A 10-year has a better chance of getting done."
He argued the province could get away with a coupon of 9.875% or 9.75% if the new notes were issued at a discount to par value.
A New York-based investor, however, said that while the deal might clear the market at those levels, he would prefer a yield higher than 10%.
"It might be possible, but for me inside 10% is going to be a stretch," said the investor. "I would want something for the tenor extension (from 2021s to 2025s) and a new issue premium."
The province's 2021s were trading at 102.5-103.5 on Wednesday, for a yield of 10.18%-9.91%, said a New York-based trader.
Any potential bond sale would provide much needed relief to the regional government of Argentina's capital city, which in October must repay a little over US$1bn in principal on its 11.75% 2015s.
"Everyone is expecting a deal from the Province of Buenos Aires," said a Buenos Aires-based banker. "I think it will help them settle all the uncertainty around the 2015s."
Investors are also probably aware they would be buying bonds issued by a province that could be on the cusp of more prominence. Daniel Scioli, the governor of the province and a member of President Cristina Fernandez's party, is currently the front-running candidate in Argentina's presidential elections.
Reporting by Davide Scigliuzzo; Editing Shankar Ramakrishnan