19 de julio de 2016 / 18:17 / en un año

Province of Chubut renews Argentina bond issuance

NEW YORK, July 19 (IFR) - Argentine borrowers continued to make their way to market on Tuesday amid what a positive backdrop for emerging market credits despite broader headline risks.

The Province of Chubut was moving forward with a benchmark US dollar 10-year amortizing bond after holding fire on Monday in the wake of the attempted coup in Turkey over the weekend.

LatAm markets have largely been unaffected by troubles in Turkey, as accounts seek yield in EM corporate and sovereign names after receiving substantial inflows in recent weeks.

“EM is still well bid,” a DCM banker told IFR on Tuesday. “There is a lot of crossover money [coming into the asset class] and the back-up in US rates if anything has been an excuse to buy.”

While Argentine President Mauricio Macri’s market-friendly policies are receiving some push-back from a populace angered by rising inflation, investors largely still like the story.

“What is keeping Argentina spreads on a tightening mode is the continued search for yield,” Jorge Piedrahita, CEO of broker Torino Capital, wrote in an email note to clients this week.

Leads on Chubut’s deal nevertheless started conservatively Tuesday morning, approaching accounts with initial price thoughts of low 8% - considerably wide to where most other Argentine provincial bonds had been trading.

Bank of America Merrill Lynch and BNP Paribas are acting as bookrunners on the bond sale.

The Province of Neuquen’s 2028s - which like Chubut’s offering are backed by oil and gas royalties, and have an average life of around seven years - had been bid at around 107.50 or a yield-to-average life of 7.33%.

Yields on plain vanilla provincial debt meanwhile range from the 7% on the 2024s of Province of Buenos Aires to the 8.10% on the 2024s from smaller Province of Salta.

Some caution may be warranted, however, given that the risks of supply indigestion. Investors have already absorbed some US$7.275bn in Argentine bonds over the last month and a half alone - much of that provincial debt.

“Some of this may be the premium that needs to get paid to keep investors interested in buying the next province,” one syndicate manager said, referring to the generous IPTs.

But healthy interest in Chubut’s bond allowed leads to tighten guidance to 7.875% (+/12.5bp) before launching a US$650m deal at 7.75% - a good 25bp tightening from start to finish.

Sean Newman, a senior portfolio manager at Invesco, still sees further upside potential despite that tightening.

Aside from the collateral package, Newman cited several things in Chubut’s favor, including its low dependence on federal tax transfers, benign debt levels and high GDP per capita.

Argentine electricity group Albanesi, rated B3/B+, is expected to follow suit on Wednesday after announcing initial price thoughts of high 9% area on a seven-year non-call four through Credit Suisse and JP Morgan. (Reporting By Paul Kilby)

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