October 5, 2016 / 9:32 AM / 2 years ago

UPDATE 2-Argentina revises pricing on dual-tranche euro offering

(Adds pricing details and quotes)

By Sudip Roy

LONDON, Oct 5 (IFR) - The Republic of Argentina has cut pricing on its first euro-denominated offering in 15 years.

The Latin American sovereign is marketing benchmark-sized bonds maturing in January 2022 and January 2027.

The long five-year is now being offered at a yield of 4.375% area and the long 10-year at 5.5% area.

That compares with initial levels of 4.5% area and 5.625% area.

The combined order book is in excess of 4bn, with no meaningful skew.

Investors said they are still keen on the sovereign despite heavy issuance already this year and even though recent economic data was poor. Argentina posted a fiscal deficit of US$2.46bn in August, about twice as high as the deficit during the previous August.

“Argentina is risking new issuance fatigue by coming back to the market more often than expected. Having said that, the appetite is still there and new issuance admissible given some setbacks on their fiscal consolidation plans,” said Delphine Arrighi, portfolio manager at Old Mutual Global Investors.

Working out fair value on the notes is a complex process, given how long Argentina (B3/B-/B) has been absent from the euro market.

One method investors are using is looking at where other sub-investment grade Latin American credits are trading in both US dollars and euros and potentially applying a similar differential for Argentina.

Brazil (Ba2/BB/BB), for example, has US dollar 4.875% 2021 bonds trading at a Z-spread of 224bp, according to leads, while its euro 2.875% 2021s are quoted at plus 252bp. That implies a 28bp difference between the two.

Petrobras (B3/B+/BB) has US dollar 5.375% 2021 notes trading at a Z-spread of 453bp and euro 3.75% 2021s at plus 456bp, giving a 3bp difference.

It also has dollar 8.75% 2026s at plus 589bp and euro 4.75% 2025s at plus 579bp. On a curve-adjusted basis, the difference is 20-30bp.

Meanwhile Argentina has US dollar 6.875% 2021s quoted at a Z-spread of 358bp and US dollar 7.5% 2026s at plus 430bp.

Argentina’s new euro bonds were marketing at spreads of roughly 459bp over mid-swaps and plus 527bp respectively at initial price thoughts.

Arrighi said the IPTs looked “compelling within the euro context where spreads are usually fairly tight, but also to its most immediate comparables like Petrobras.”

The Reg S transaction, which is today’s business, will be Argentina’s third cross-border offering this year as it tackles hefty funding needs.

It has already raised US$19.25bn from its first year in the international debt market since 2001, with investors betting on the government’s turnaround story.

BBVA, BNP Paribas and Credit Suisse are lead managers on the euro transaction. (Reporting by Sudip Roy; additional reporting by Robert Hogg, editing by Julian Baker)

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