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BUENOS AIRES, March 11 (IFR) - Argentina's progress in settling a 15-year old battle with creditors could unlock more than US$30bn of new bond sales out of the South American country this year, as local governments and corporates join the sovereign in a rush to the capital markets.
The federal government alone is expected to tap foreign bond investors this year for anywhere between US$20bn and US$25bn as it seeks to make good on payments with litigant creditors, pay past due interest stemming from its 2014 default and cover a gaping fiscal deficit.
Provinces are likely to follow closely behind with bankers estimating another US$3bn-$5bn in new supply from local governments as they try to fund their own fiscal holes, refinance outstanding debt and garner funds for much-needed investments in infrastructure.
"The message from the federal governments is go out there and tap the market," a Buenos Aires-based banker told IFR. "Don't depend on the government."
The cash-starved Province of Buenos Aires jumped ahead of the crowd on Wednesday, taking advantage of positive sentiment to raise US$1.25bn through a new seven-year bond that priced at a yield of 9.375%.
The western province of Mendoza, which boasts rich mining and oil resources in addition to its Malbec vines, is also thought to be close to coming to market with a bond sale of up to US$500m after it recently met investors in New York, said market participants.
Provincial governments in Cordoba, Chubut, Santa Fe, Neuquen and Salta are also on bankers' maps as potential candidates for new bond issues.
Cordoba, which has some US$600m in US dollar bonds falling due in 2017, could come with an issue of up to US$1bn, said one analyst.
The city of Buenos Aires, meanwhile, already has authorisation to issue up to US$890m this year to refinance bonds maturing in 2017 and fund new infrastructure projects, the city's director of public credit told IFR.
Other potential borrowers, some of which spoke directly with IFR, are watching the market closely and are debating whether to come before or after Argentina launches its first international debt placement in close to 15 years.
Argentine debt curves have come under pressure in anticipation of the sovereign's multi-tranche deal, which could be US$11bn in size or more and is expected to be launched before mid-April.
New sovereign debt under New York law will serve as a fresh pricing benchmark for corporates and provinces alike.
Argentina's new bond sale could pay yields of 7.25% on a five-year, 8.4% on a 10-year and 9.7% on a 30-year, Citigroup's head of emerging markets Guillermo Mondino wrote in a report on Thursday.
But Buenos-Aires-based bankers reckon that the Republic might replace the 30-year tranche with a shorter-dated 15-year to save on costs.
Still, supply concerns and uncertainty over the new government's ability to turn the economy around are giving some corporates pause and playing into their financing strategies.
Corporates have largely relied on short-term financing in the local bond markets, where nominal rates have soared to north of 30% as the central bank puts the brakes on a falling peso in an effort to contain inflation.
Yet while CFOs remain reticent about issuing debt in an economy that could see negative growth this year, corporates may want to refinance expensive short-term peso debt, which impacts on cashflows, with cheaper long-term US dollar funding.
"There is a line forming," said Walter Stoeppelwerth, head of research at brokerage Balanz Capital, a Buenos Aires-based brokerage and asset manager. "Everybody wants a lower cost of capital."
He mentioned Clarin's Cablevision subsidiary, dairy producer Mastellone Hermanos, power producer Pampa Energia and gas distributor Metrogas as some of the companies that could benefit from lower-cost international funding.
The first wave of corporates may be those with immediate refinancing needs.
Real estate company Raghsa, confectionery company Arcor, Banco Macro, credit card company Tarjeta Naranja, tollroad Autopistas del Sol and state-owned oil company YPF all have US dollar debt falling due over the next year or so, according to Thomson Reuters data.
YPF has already mandated banks on a US$500m bond, while real estate firm IRSA is marketing a seven-year bond to fund a debt tender.
Power company Pampa Energia is also considering a bond issue to help finance its potential acquisition of assets from Brazilian oil company Petrobras, a company official told IFR this week.
Corporate debt could be a palatable trade for hedge funds already involved in Argentina but looking to rotate out of the sovereign as spreads compress.
"We are pitching to local corporates," said Agustin Rabinovich, head of sales at boutique investment bank AdCap.
"First [they could do] something local, then a private placement abroad and then an international debt ."
After years of depressed capital expenditure and limited access to the capital markets, Argentina corporates have plenty of room to increase debt to fund new projects.
"The corporate sector is under-leveraged relative to other countries," said Daniel Marx, executive director of financial advisory firm Quantum Finanzas and Argentina's former secretary of finance. (Reporting by Paul Kilby and Davide Scigliuzzo; Editing by Matthew Davies)