Category: Argentina

Argentina may be close to launching a new CPI that complies with international standards, according to BBVA. While that will not fix the distortions that come from price controls and government intervention in several industries, it could reintroduce the CPI as an effective tool in forecasting inflation. If the new measure complies with international standards, investor confidence would get a boost, increasing demand for Cer inflation indexed bonds. The shop examines the performance of six Argentine inflation linked bonds, the Pre 8, Pr 12, Bogar 18, Boden 14, Discount and Par bonds, and notes the yield differential between the Bogar 18 and Discs tightened following the CPI announcement Monday. Most economists following Argentina are skeptical of the official numbers as reported by INDEC, the economic statistics bureau, and have devised their own method to establish inflation. The rate is more than double what the government reports, at around 20%, say analysts.

Fitch says it is closely monitoring the medium term credit impact of a sizable increase in the City of BA’s debt that will follow the anticipated issuance of ARP1.6bn in debt. “The city’s capacity to manage this increased indebtedness will likewise be tied to its tax revenue performance and to the related economy performance,” says the agency. It rates the city B (stable) but will look carefully at the debt ratios following issuance. Debt /revenues ratio has declined from 32.7% in 2005 to 19% as of September, says Fitch. “Considering the new issue, Fitch anticipates that this ratio could reach a level of 26% in December 2008, unless recent tax measures yield higher tax intake,” it adds. Firm details of the deal, including currency, maturity, and speed of debt issuance, remain to be set. A maturity of at least 7 years is expected.

Argentina should be able to muddle through and cover its funding commitments for this year using Chavez and domestic markets. But crunch time is coming in 2009, according to a LatinFinance panel on Argentina’s economic and political future held Thursday in Miami. “The financial needs of the government are going to be higher next year and that will cause the government to tap the international markets,” says Martin Krause, professor of economics at ESEADE and the University of Buenos Aires. “In order to be able to go to the markets next year, they need to start solving the problems now, which is basically the Paris Club and the holdouts,” he adds. Claudio Loser, senior fellow at the Inter-American Dialogue, called the Argentina situation “totally unsustainable.” Other panelists said that President Cristina Kirchner’s initial hints that she may interested in resolving the holdout situation have waned, leaving investors less hopeful of an agreement any time soon. ATFA, the bondholder lobby group, plans to step up pressure through the US government, but it is unclear how fruitful this will be. In the past, the sovereign has ignored similar pressure, and bondholders lack a unified negotiating platform. Overall, it looks like the sovereign is free to coast on elevated soft commodity prices, at least for the short term. “Luck is still on the side of Argentina for now and for the foreseeable future,” says Pablo Morra, economist at Goldman Sachs.

The Chavez influence may be starting to wane in LatAm, according to participants at a LatinFinance panel on Argentina’s economic and political future, held Thursday in Miami. Rafael de la Fuente, chief LatAm economist at BNP Paribas, highlights Venezuela’s inability to keep the state oil company at arm’s length, along with an over reliance on oil as major problems. He adds a fixed exchange rate, food shortages and inflation to the list of woes and says oil could remain at current levels and the sovereign could still have a crisis. “This is going to end in tears,” says de la Fuente. “The writing is on the wall. When that goes, so does the influence that he yields. My perception is that influence is not long lasting.” Others say the Venezuelan people and other LatAm nations will see through Chavez as they align themselves increasingly with democracy. “Ultimately people will see that Chavez is not the way of the future,” says Nancy Soderberg, co-chair of ATFA. “Continued reliance on Chavez is a tarnish on the proud history of the Argentine people.” Soderberg, a former ambassador at the US mission to the UN, adds that Chavez is an annoyance but will lose support once the dominance in the region – and the world – of anti-Americanism fades. Panelists were unable to predict how long the Venezuelan president will last. “It could turn very quaickly,” says de la Fuente. “Whenever the time comes that oil is sustainably around $60 a barrel, add 12-15 months to that,” says Douglas Smith, chief economist for the Americas at Standard Chartered.

Argentina’s Banco Hipotecario has offered to buy back up to $112m in foreign bonds. The bank will pay $895 per $1,000 tendered for up to $56m in 2013 dollar notes and EUR855 per EUR1,000 tendered for up to $56m equivalent in 2013 Euro notes, in an offer expiring February 27. The bank felt it was a good time to take out debt at lower levels, an official close to the deal tells LatinFinance. Deutsche Bank is dealer manager.

The Peterson Group, led by Argentina’s Eskenazi family, has managed to secure the necessary funds to acquire a 14.9% stake in YPF. The deal sets a new benchmark for LatAm M&A financing and shows how a relatively unknown investor can secure a large sum of cash for a deal with numerous risks. The group obtained a firm commitment from Credit Suisse, BNP Paribas, Goldman Sachs and Itau for a $1.02bn bridge loan, which is expected to fund in early February, say executives close to the deal. The group, led by Credit Suisse, abandoned an original plan to syndicate the loan and opted for a straight bridge. It will try to syndicate the facility in the coming weeks. The 3-year average life loan pays the equivalent of Argentine 3-year CDS over Libor, plus 200bp. The Petersen Group also received a $1.02bn seller’s note from Repsol, YPF’s parent. The two pieces combined add up to $2.04bn. That is short of the $2.24bn needed for the 14.9% stake, suggesting the Peterson Group will put in roughly $200m in equity. The group has the option to buy an additional 10.1% at a later date. The challenge for leads will now be to sell down their holdings. A number of prospective lenders are heard to have backed away from the transaction when it was pitched in Madrid late last year because of the risky zip code and a generalized aversion to more challenging credits. YPF is also gearing up for an IPO later this year of at least 20% of the shares held by Repsol, which means the deal could top $3.00bn. Credit Suisse and Goldman will be among the banks taking a lead role on that offering.

Argentine online marketplace Mercadolibre plans to sell up to $292m in common stock in a secondary offering on the Nasdaq Global Market. It did not disclose how many shares will be sold, but did say that some shareholders will also sell equity. Proceeds will fund future acquisitions or investments, and general corporate purposes. JPMorgan and Merrill Lynch will underwrite the offering. The company sold 16.1m shares in a US IPO in August at $18 a share. The stock closed Friday at $54.06.

Shareholders of Argentina’s Transportadora de Gas del Norte (TGN) have approved a bond program worth up to $400m. The bonds will be issued in tranches denominated in dollars or other currencies. TGN did not provide information regarding the timing of an initial issue.