Argentina has exceeded expectations with its latest cross-border bond issuance, raising $16.5bn over four tranches, the largest-ever bond issue from an emerging market sovereign.
After 15 years without access to international capital markets, the sovereign priced three-year, five-year, 10-year and 30-year notes with yields
ranging from 6.25% on the shorter end of the curve to 8% on the longer point.
An order book for the sovereign bonds steadily increased throughout Monday trading, recording $25bn early in the day and closing with $68.8bn in orders, sources said.
The sheer weight of demand for the sovereign’s notes enabled it to tighten its yield curve, much to some
investors’ chagrin, sources said.
The yield came to 6.25% on the $2.75bn three-year tranche, 6.875% on the $4.5bn five-year tranche and 7.5% on the $6.5bn 10-year tranche. The $2.75bn 30-year tranche, the only note that did not price at par, had a yield of 8% and a coupon of 7.625%, sources said.
The majority of investor appetite was with the 10-year notes, signalling that investors were willing to bet long on Argentina’s notes. About 690
different investors came into that tranche and demand hit $25.7bn. Argentina’s finance minister
Alfonso Prat-Gay said in a televised conference that this was a record for
emerging market bonds.
The
three-year notes meanwhile recorded demand of $10.5bn, the five-year recorded $14.5bn and the 30-year notes recorded $17.9bn in demand. The total $68.8bn order book was the largest-ever order book for any emerging market cross-border bond deal.
Prat-Gay
added that Argentina was able to save approximately $3bn by pricing the
four-tranche deal in the current primary bond market. This adds to the $6bn the
sovereign saved in its agreement with holdout creditors.
The finance minister also said Argentina had obtained more favorable “national government costs” by pricing the jumbo benchmark deal under a New York jurisdiction. Under this jurisdiction, the sovereign also minimizes future litigation risks, he said.
After defaulting on its debt in 2001, Argentina was the largest sovereign debt defaulter and for a time it was the highest yielding sovereign, globally.
The
majority of proceeds from this bond sale will go towards paying holders of the
country’s defaulted bonds. Holdout creditors are due to receive 75% of their
original demands. Remaining proceeds will be used to fund this year’s fiscal deficit, the finance ministry said. This will go a long way to stem the bleeding of foreign exchange reserves.
Argentina’s
deal serves as a harbinger for the rest of Latin America’s high yield market, a
banker away from the trade said. Investors just “wanted to get a taste of
Argentina’s deal,” he added.
Some investors said they had been preparing for this jumbo transaction all year, opting to stay away from other high yield deals, in order to catch the wave of a successful Argentine transaction, one investor said. While heavy appetite was expected, he expressed surprise at the volume of demand on the trade.
Since coming into office, Argentina’s president Mauricio Macri has floated the peso, cut energy subsidies and by issuing this jumbo benchmark deal, he has now taken the
biggest step in resolving issues with holdout creditors.
Macri however, faces lofty expectations over curbing the country’s inflation rate, while this cross-border deal is set to provide a yardstick for Argentina’s sub-sovereigns and corporates looking to tap the cross-border bond market.
Argentina’s external debt-to-GDP ratio will increase to approximately 30%, according to Capital Economics, which is still lower than the country’s levels prior to the 2001 debt default.
Deutsche
Bank, HSBC, JPMorgan and Santander were global coordinators on the deal, while
BBVA, Citi and UBS are joint bookrunners.