16 de enero de 2015 / 19:24 / en 3 años

Investors ignore Argentina repayment risks

NEW YORK, Jan 16 (IFR) - Markets are shrugging off looming amortisation spikes in Argentina this year and banking on the current regime muddling through until a more market-friendly government takes the reins of power come the presidential elections in October.

Realistic or not, the buyside is nevertheless pricing in that best-case scenario for Argentina, which despite last year’s technical default proved to be one of the best performers in the emerging markets universe in 2014.

Last year the Argentine sovereign component of the EMBI Global index tightened by 89bp, versus 45p for the overall index. It was a similar story for the country’s corporates, which rallied by 143bp compared with a 67bp widening on the corporate emerging market index - the CEMBI.

And accounts expect more upside with the departure of President Cristina Fernandez de Kirchner, whose economic policies are seen to be holding the country back.

“We have an election this year. It is the last time the Kirchners can be in government and the three candidates are more market-friendly,” said a Buenos Aires-based trader. “Bonds are not expensive and if you compare them with the rest of the region they are cheap.”

Such performance has partly been spurred by support from US distressed players in search of opportunities outside their home market.

Taking a long-term view, accounts have broadly been betting that regime change in 2016 will result in a quick resolution to the holdout crisis, renewed access to the international capital markets and a fast economic turnaround.

“In our view the situation with holdouts will be resolved between now and reasonably shortly after the election of the new government,” said Paolo Valle, senior portfolio manager at Manulife Asset Management, which is overweight Argentina and manages some US$4bn in EM assets.

“There are very few investments today that can offer the potential returns created by the normalisation of the issue with holdouts.”


Despite the obvious perils of investing in Argentina, markets have barely flinched on negative headlines, including the country’s failed liability management operation in December designed to reduce the looming roll-over risks presented by close to US$6bn in Boden 2015 maturities.

A negotiated settlement to resolve the country’s decade-long dispute with holdout creditors led by Elliott Management also seems ever more distant - at least under the current administration.

Despite the expiration of the so-called RUFO clause, which the government said had prevented it from negotiating with the holdout creditors, both sides remain too far apart to meet in the middle, analysts say.

For now the market is not pricing in short-term payments risks, as can be seen by the price action on the local law 7% Bodens due October 3 2015, which have been trading just above par.

“I have only seen that optimism on the Boden 2015s,” said a US-based trader. “It is good rate, and the market is confident about payment.”

That US$6bn, however, is just under half of the approximately US$13bn owed in debt servicing costs this year, including Paris Club debt and coupon payments from the recently issued Bonar 2024s, said Siobhan Morden, head of Latin America strategy at Jefferies.

Confidence in the country’s payment abilities has been raised now that reserves have stabilised, partly thanks to currency swaps from China, but markets have largely been focusing on the approximately US$31bn in gross reserves, not all of which can be used for debt servicing, Morden points out.

“No one pays attention to net reserves, which are declining every day,” said Morden, who thinks that market optimism over a post-Kirchner economy may be a bit premature.

“You have to pay back the China swap line (in 12 months time). It is a temporary fix to end the term, but it places a huge burden on the incoming administration to pay back the swap line and reverse the balance of payments deficit,” she said. (Reporting by Paul Kilby; Editing by Matthew Davies)

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