Some of the world’s biggest investors are lining up huge lead orders ahead of Argentina’s imminent return to international capital markets after some 15 years.
LatAm bond market participants said that several accounts had lined up orders of hundreds of millions of dollars ahead of a deal that is likely to have at least three tranches and total anywhere from $12bn to $15bn.
“We understand they have been promised some huge anchor orders and, given the momentum around the credit, envisage no problems in Argentina raising the money it needs,” said one head of Latin American debt capital markets, whose optimism was almost unanimously shared by bankers and investors this newspaper spoke to.
The IADB gave the country a further lift yesterday after its president Luis Alberto Moreno used his keynote press conference to announce that the bank would provide the government with a $5bn loan.
“The government of President [Mauricio] Macri is adopting a series of measures that are fundamental to occupy once again a space in the international financial space,” said Moreno. “The fact that it has negotiated with the so-called holdouts and is at the door of emitting bonds is going to normalise the situation.”
Argentina, for more than 15 years a pariah of international capital markets, will begin meeting fixed income investors on Monday with bond investors and bankers in bullish mood about what could be the largest EM debt issue for two decades.
There is no official price talk but estimates for the yield on a new 10 year bond are in the 8%-8.5% range, according to several investors and bankers.
Latin America’s third largest economy has one final obstacle to overcome before it can issue: an April 13 US Appeals Court hearing that is expected to lift injunctions that prohibit the sovereign from selling cross-border debt.
But on the demand side, there appear to be few worries. “My impression is that the average fund is still underweight in Argentina after so many years of headwinds,” said Ray Zucaro, CIO of Miami-based RVX Asset Management.
“But Macri has been able to accomplish a lot and — with secondary market liquidity so low — the new issue will provide the best opportunity for investors to increase their exposure to the country. Solving the legal issues will help the rating and the new deal will increase the country’s weighting in indices.”
Argentina’s bond market prospects took an about-turn when Macri, a business-friendly former Buenos Aires mayor, won the presidential elections. But his decisiveness in removing currency controls, cutting energy subsidies and — crucially — coming to an agreement with holdout creditors has impressed many investors.
“All eyes are on Argentina’s re-entry,” said Paul Tregidgo, vice-chairman of debt capital markets at Credit Suisse. “There is a sense that after many years of absence in the market, there is an opportunity for the market and very strong pent-up demand.”
Tregidgo described the demand as a “confluence” of the perception of the opportunity created by the new administration and policies and a yield environment that required investors to look hard for other opportunities to earn yield and performance. “Argentina is going to provide that,” he said.
The World Bank’s chief Latin America economist, Augusto De La Torre, also appeared upbeat about the conditions for the potential issue. “At the moment the country has a low public sector debt and bond markets are fairly liquid,” he said.