NEW YORK, July 14 (IFR) - The steady supply of Argentinian bonds to the US dollar primary markets continued on Thursday with Banco de Galicia y Buenos Aires, Petrobras Argentina and CLISA announcing the sale of close to US$1bn of new paper.
Thursday’s deals largely received a positive reception in the current risk-on environment despite signs of indigestion after some US$6bn in Argentine supply in June.
Banco de Galicia, rated B3/B-, tested the waters with a US$250m 10-year non-call five - the country’s first-ever Basel III compliant, Tier 2 bond. The bond is expected to be rated Caa1/CCC.
The deal drew a decent crowd as investors sought to gain exposure to one of the country’s largest banks and to a sector that is likely to benefit from President Mauricio Macri’s market friendly policies.
Price discovery was somewhat tricky however, given the lack of comparables in Argentina and elsewhere in Latin America.
“Current price talk is certainly aimed toward compensating investors for this uncertainty, but it is hard to say where this deal will settle longer term given its unique nature,” said Jason Trujillo, an analyst at Invesco.
Indeed, leads Deutsche Bank and JP Morgan were able to ramp in pricing from very high 8% to a final yield of 8.25%. They still offered however a decent pick up to the sovereign’s 2021s and 2026s that were trading at 5.09% and 6.25%, respectively.
Other Argentine banks are likely to follow with loss absorbing Basel III capital deals as the country’s economy starts to grow and financial institutions begin to lend more.
“All the other banks will try to do the same,” said an investor. “They need to grow through lending and (hence) will need more capital going forward.”
In a market that is putting a premium on liquidity, Banco de Galicia’s deal size could pose problems for some, however.
“There aren’t too many options to invest in financials in Argentina and Galicia is one of the biggest plays in the country,” said Joaquin Almeyra, a fixed-income trader at Bulltick in Miami. “The problem is the size (of the deal).”
Almeyra thinks that Argentine corporate’s inability to offer sizable trades - unlike companies from a larger economy like Brazil - is likely to put off some investors and prevent some of the country’s issuers from coming to market.
The relatively small size of an up to US$200m bond from Celulosa Argentina was thought to be one of the reasons why the pulp and paper company was forced to pull its deal on Wednesday.
Infrastructure firm CLISA, rated B-/B-, may have faced similar complaints from investors wary of illiquid issues after it downsized its seven-year non-call four bond on Thursday to US$200m from US$300m before launching at 9.75%.
In contrast, a seven-year non-call four from Petrobras Argentina proved popular among accounts who liked the US$500m benchmark size.
Leads have been able to squeeze guidance from IPTs of 8% area to 7.75% area (+/- 12.5bp) before launching at an even tighter yield of 7.50%.
At that level, Petrobras Argentina is pricing near flat to YPF’s curve where, according to Thomson Reuters data, the 2024s and 2025s are trading at around 7.20% and 7.55%.
That troubled Brazilian oil company Petrobras is selling its Argentine unit to local operator Pampa Energia was also an added plus for some accounts.
Proceeds from Thursday’s bond will help Petrobras Argentina fund a tender for existing 2017s, whose change of control clause will be triggered on the back of Pampa Energia’s acquisition. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)