By Paul Kilby
NEW YORK, Jan 19 (IFR) - Argentina launched a US$7bn two-part bond on Thursday, covering its planned dollar issuance for the year in one fell swoop on the back of more than US$21bn of orders.
The deal was the sovereign’s third in US dollars since being welcomed back to the international capital markets last year after a protracted fight with creditors, and demand was strong.
The buyside appeared satisfied with pricing on the offering of five and 10-year bonds, and many in the market said Argentina looked attractive compared to other EM and high-yield debt.
“We still see Argentina as undervalued and relatively cheap at this level,” said Yong Zhu, a senior portfolio manager at DuPont Capital Management.
Leads launched the US$3.75bn 10-year at 7%, at the wide end of 6.875%-7.00% guidance, and the US$3.25bn five-year at 5.625%, or the tight end of guidance of 5.625%-5.75%.
“Argentina set yields ... in line with our expectations on the five-year and slightly less than our models suggest on the 10-year,” said Sean Newman, a senior portfolio at Invesco.
Overall, Argentina’s cost of dollar financing was considerably cheaper than last year, when it printed a 2021 and 2026 to yield 6.875% and 7.5%, respectively.
Earlier in the week those bonds were trading at yields of 5.21% and 6.66%, or at G spreads of 350bp and 432bp, according to a banker away from the new deal.
Unlike Mexico, Argentina appears to be relatively unscathed by US president-elect Donald Trump’s rhetoric or the prospects of further Fed hikes later this year.
And investors see plenty of upside as President Mauricio Macro rolls back the leftist policies of his predecessor and tries to steer the economy back onto a sustainable growth path.
“Argentina is enjoying the status of a high yielding country that is less correlated with interest rates in the US,” said Sergei Strigo, head of emerging markets debt at Amundi Asset Management.
“That was another selling point.”
Yet while the sovereign’s debt is relatively low, the markets are keeping a sharp eye on the fiscal numbers given the country’s high primary deficit - and its history of defaults.
Its 2001 default sparked a battle with creditors that kept the country locked out of the international capital markets for 15 years, a deadlock that Macri helped break last year.
Yet investors say weak growth and the possibility of fiscal slippage ahead of legislative elections this year remain major risks.
“It is crucial Argentina signals steady fiscal consolidation between now and the end of the Macri administration (in 2019), a US-based investor told IFR.
“If (the government) wants to see lower spreads in a sustainable manner, and trade as a BB credit, they should stick with what they said they would do.”
The government went off script last year, returning to the bond markets in April with a pledge that would be all for the year - before quickly returning to sell more debt in June.
This year it needs to raise a little over US$40bn, US$7bn of which is expected to be covered by Thursday’s trade and another US$3bn in bonds in other hard currencies.
Another US$14bn is expected to be raised through local securities, with the rest coming from multilateral loans, the refinancing of local instruments, public entities and a US$6bn repo reportedly provided by the same banks that led Thursday’s bond.
How much Argentina issues externally may depend in part on the depth of its domestic market, which the government has worked to develop since taking office in December 2014. (Reporting by Paul Kilby; Editing by Marc Carnegie)