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Argentina returns to bond markets

April 19, 2016

Argentina has been given a rousing welcome back to international bond markets as it secured massive orders for its first debt issue since defaulting in 2001. Its new bond was five times oversubscribed.

Image: picture-alliance/dpa/D. Fernandez

Latin America's third-biggest economy ended 15 years of financial isolation on Tuesday, receiving offers worth about $67 billion (59 billion euros) for a bond issue totaling $16.5 billion.

"We could even have issued twice as many bonds," Finance Minister Alfonso Prat-Gay told a news conference in Buenos Aires.

Argentina managed to sell the bonds at yields at the lower end of its price guidance due to the strong interest. It sold $2.75 billion worth of 3-year notes at 6.25 percent, $4.5 billion of 5-year bills at 6.87 percent, $6.5 billion of 10-year bonds at 7.5 percent and $2.75 billion of 30-year bonds at 7.62 percent.

The order book was one of the largest ever seen for an emerging markets bond - even exceeding the $50-billion book for Brazilian oil firm Petrobras's six-tranche debt worth $11 billion in 2013.

Deutsche Bank, HSBC, JP Morgan and Santander were acting as global coordinators on the bond sale, while BBVA, Citigroup and UBS were joint bookrunners.

Argentina: no longer a tardy payer?

Investor enthusiasm

After ratings agency Moody's raised Argentina's creditworthiness on Friday, investors - two thirds of them from the US - lapped up the bond issue, which was five times oversubscribed. However, the country's debt still ranks as a speculative investment with a "high credit risk," but less high-risk than before.

John Baur, a portfolio manager at Eaton Vance, called Argentina's return to bond markets as a "very important step" in improving the economy of crisis-hit Argentina. "It is one of the few positive reform stories in the emerging markets space, where you are seeing economic liberalization," Baur told the news agency Reuters, adding: "You are not seeing much of that anywhere else in the world."

Agustin Carstens, head of the IMF's Monetary and Financial Committee also called the bond sale a "major step forward" for the country. "It is very good to have a country as important as Argentina putting the house in order."

He warned, however, that Argentines would have to endure tough economic cutbacks to stabilize the economy and public finances.

"Needless to say in the short term some measures may be difficult to digest," Carstens said Monday.

vulture caricature
After Argentina's default, financial speculators bought distressed bonds cheaply and then refused restructuring deals. In 2008, Singer's investment fund acquired Argentine bonds for $49 million that would be worth $832 million if paid out at full face value. Investment companies that follow this essentially parasitic strategy are often called "vulture funds."Image: picture alliance/AP Photo/Pisarenko

Ongoing controversy

With the money, Argentina's new conservative president Mauricio Macri wants to boost the country's struggling economy and settle a 15-year lawsuit with US hedge funds over outstanding debt resulting from Argentina's 2001 default.

Last week, a US court cleared the way for Argentina to start borrowing again, after holdout creditors - led by Elliott Management and Aurelius Capital - agreed to settle with 75 percent of the nominal bond value they had originally claimed.

The deal will cost Macri an estimated $6.5 billion, which his opponents said would be footed by poor families through public spending cuts.

Macri's predecessor, socialist president Cristina Kirchner, pursued a protectionist financial policy, opposing raising new debt after the 2001 default. She described the US hedge funds as "vultures" and rejected any agreement to settle the issue.

In a speech last week, Kirchner said that history was repeating itself and catching the Argentines out. "Debt, devaluation, layoffs, political persecution, price rises - these are just a few of the calamities that the new government has caused in barely four months."

uhe/mrk (Reuters, AFP, dpa)