Argentine province Cordoba looked set to open a new chapter in the country’s debt capital markets history on Thursday, with a 12.5% seven year deal, the first non-private placement or debt restructuring deal since 2001.
Argentina’s third largest province was poised to launch a debut bond of up to $350m, capitalising on strong demand for Argentine risk after last month’s debt swap.
"This deal will see strong demand due to the high yield on offer," said David Spegel, global head of emerging markets strategy at ING Bank in New York.
Argentina’s federal government carried out a debt swap last month on up to $18.3bn in defaulted bonds in a bid to normalise relations with international capital markets after a nine year conflict with holders of defaulted sovereign debt.
The Cordoba bullet deal, rated B3/B-, comes after a roadshow with lead arrangers UBS and Citi in London, New York and Boston this week. This deal would become the first non-144A bond issue from the country since 2001. The proceeds of the debt sale will be used for infrastructure projects, rather than for debt restructuring purposes, as is typical of Argentine borrowers in recent years.
Bankers said the notes should pay 75bp less than Buenos Aires’ 2018 9.375% notes, which trade at 13.25%, as the largest province in South America’s second largest economy buckles under its debt burden.
Buenos Aires, also rated B3, has a 10.7% deficit for 2010 compared with 3.3% for Cordoba. The deal, if priced at 12.5%, would be cheap for the issuer compared with the longer-duration Buenos Aires’ 2028s, which is trading at 12.6%.
The deal comes after a strong rally for Argentine risk. Sovereign spreads in JPMorgan’s Emerging Markets Bond Index Global have compressed from 900bp in May to 600bp thanks to the debt deal and the higher-than-expected projected GDP growth of 6.5% this year, driven by a pick-up in exports and commodity prices.
Cordoba is seen as conservative while Buenos Aires is well known for fiscal profligacy. As of March 2010, Cordoba’s total debt was equivalent to $2.47bn, of which $1.15bn is inflation-linked peso debt, known as CER-adjusted, a further $468m other peso-denominated debt and $819m of foreign currency debt. Some $607m of the foreign currency debt is owed to multilateral lenders.