NEW YORK, Feb 10 (IFR) - A string of Argentine provinces are lining up to issue dollar bonds in the next few months to take advantage of windows of opportunity created by the growing prospect of a negotiated settlement between the Argentinian government and holdouts.
At least three provinces are reportedly preparing to tap the dollar bond markets this month or next.
Argentine debt prices largely outperformed this week, despite a broader market selloff, on news two of the six principal holdouts had signed on to a US$6.5bn offer from the government.
And this positive jump in prices has created a decent opportunity for these provinces, said bankers.
“Today might not be the right day, but the provinces will prepare themselves to benefit from any tailwinds from a resolution with the holdouts to tap the market,” said a DCM banker.
The province of Buenos Aires is expected to come first with local papers reporting that Citibank, JP Morgan and HSBC have been mandated on an up to US$500m bond deal for which the borrower hopes to pay anywhere between 9%-9.5%.
Those levels may seem high, but they are a vast improvement on the 11.7% yield seen on the province’s 9.95% 2021s in early October when the presidential election was still in full swing and the less market friendly candidate Daniel Scioli looked set to win.
Those bonds are now trading around 8.90-8.60%, which should put the borrower within reach of its pricing target.
“I think they need the money, so they will pay whatever they have to in order to get it done,” the banker said.
A deal from the Province of Buenos Aires should set a decent benchmark for others to follow and test appetite for the country overall as newly installed President Mauricio Macri steers the country on more market friendly course.
The province of Mendoza is also looking to raise US$300m in both the local and international markets to refinance debt, according to local reports.
And while Neuquen province is in less of a rush thanks to tax receipts form the Federal government, it too is contemplating a bond issue.
Neuquen 2021s have been trading with a yield of around 7.90%, while Mendoza’s 2018s are being spotted at around 9.77%, both much tighter than last week.
It is thought the Neuquen will want to lower the cost of funding by coming with yet another deal backed by gas royalties.
A secured bond maturing in June may free up royalty contracts to use those contracts for a new bond, said the banker.
“To the extent, they can free up capacity and do secured, I am sure they will do a secured deal,” he said.
These provinces would need to move fast as windows of opportunity have been fleeting of late as broader markets fret about the direction of monetary policy in the US, growth in China and weakness in the commodity sector.
Sentiment could also turn if Macri fails to cut a deal soon with billionaire Paul Singer’s Elliott Management and Aurelius Capital Management - the two principal holdouts who have so far declined to sign on to the government’s proposal.
Concerns about more supply have also kept a cap on any upside in the secondary markets. The government still has to come to market to pay the billions of dollars it has promised litigant investors. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)