(Adds new book size, revised pricing)
By Davide Scigliuzzo and Paul Kilby
NEW YORK, June 2 (IFR) - The Province of Buenos Aires tightened pricing on its first international bond sale since 2011 after demand for the US$500m deal topped US$2bn on Tuesday.
The borrower has set price guidance of 10.25%-10.35% for the six-year bond sale, inside initial price thoughts of mid 10%s released earlier.
Strong demand comes despite a relatively small new issue premium, considering that the Province's existing 2021s have been trading at a mid-market yield of around 10.35%.
"They are issuing on the curve with virtually no premium," said a New York-based trader. "Local guys are not interest because of the risk, but they like the coupon."
Other accounts, however, have expressed interest in the bond in what remains a low yield environment.
"At first glance mid 10% sounds fair," said one investor evaluating the issue. "They will come in the low 10%s, but that would still be fairly attractive."
Jorge Piedrahita, CEO at brokerage Torino Capital, argued that even if priced at the tight end of guidance the new notes would still offer value to investors.
"The (existing) 2021s have widened in anticipation of this deal. Even if they push it down to 10.25% or 10%, the coupon is still attractive," he said.
The yield offered by the new provincial offering also compares favorably to bonds issued by other local governments and by state-owned oil company YPF.
The City of Buenos Aires's 2021s, for example, were spotted trading at a yield of just below 8% on Tuesday, while YPF's 2024s were yielding around 8.2%.
Principal on the new notes will be repaid in two equal installments in 2020 and 2021, resulting in a slightly shorter average life of 5.5 years.
As of late last year, the Province faced US$2.76bn of principal and interest payments in 2015, according to an investor presentation seen by IFR. Debt servicing costs are set to decline to around US$1bn in 2016 and to a similar amount in 2017.
Buenos Aires is also offering investors the opportunity to exchange up to US$500m of its outstanding 11.75% notes due in 2015 for newly issued additional notes.
BNP Paribas and Bank of America Merrill Lynch are the book runners on the transaction, which is expected to launch and price later on Tuesday. Banco de la Provincia de Buenos Aires is co-manager. Ratings are Caa2/CCC- (negative/negative) by Moody's and S&P. (Additional reporting by John Balassi Paul Kilby Davide Scigliuzzo; Editing by Jack Doran)