Argentina launches bond comeback roadshow

10/4/2016

By: Eric Platt and Benedict Mander

Latin American nation sidelined from debt markets since 2001 default

Investor interest in a multibillion dollar bond offering from Argentina has reached a zenith as the Latin American sovereign, sidelined from global debt markets since its 2001 default, launches a five-day marketing tour across the US and UK.

The sale, which is expected to eclipse $12bn, is a test of fund manager appetite for emerging market debt after a deep sell-off and subsequent rally, exacerbated by volatile commodity prices and fear of a slowdown in global economic activity.

Investors have been told that the offering could reach as much as $15bn across five-, 10- and 30-year tenures. Bankers have gauged investor demand for an 8 per cent yield on the 10-year notes with pricing on the other maturities expected to follow in due course, two investors said.

The bonds are likely to be sold the week of April 18, several people close to the situation added.

Despite eight defaults since its 1816 independence, the election of President Mauricio Macri, appointment of market friendly officials and deal with holdout creditors have burnished investor enthusiasm for new Argentine debt.

“The change in direction of policymaking has been radical,” said Alejo Czerwonko, an emerging markets strategist at UBS Wealth Management. “It has been a 180 degree turn. Structural reform in emerging markets is scarce and you are getting a whole lot of it in Argentina.”

The so-called non-deal roadshow, where bankers will pitch to investors on Argentina but not market a specific offering for sale, will begin in London and at the New York Palace in Manhattan on Monday.

Bankers and Argentine policymakers are also scheduled to travel to Los Angeles, Boston and Washington, according to an investor invitation obtained by the Financial Times.

Deutsche Bank, HSBC, JPMorgan and Santander have been hired to lead the transaction with support from BBVA, Citi and UBS.

Policymakers and bankers have been separated into two groups — Team White and Team Blue, a nod to the Argentine flag — for the roadshows.

“Given this is the first sovereign transaction in over 15 years, it is paramount they go through great lengths and depths to explain the Argentina story, to explain how they’ll meet spending targets, how they’ll control inflation, how they are looking at reserves,” said Sean Newman, a portfolio manager at Invesco.

Proceeds from the $12bn-plus sale will be used to pay creditors of its defaulted notes, including funds managed by Paul Singer’s Elliott Management.

Argentine officials concede that the country is unlikely to be able to pay the holdout creditors by an April 14 deadline fixed by Thomas Griesa, the New York judge presiding over the case.

This is due to an April 13 hearing at the appeals court that will determine whether or not to uphold Judge Griesa’s decision to lift injunctions that prevent Argentina from paying the holdouts.

Although most observers expect Judge Griesa’s decision to be upheld, it will leave little time to execute a logistically complicated transaction.

Furthermore, if Argentina is not able to meet the April 14 deadline, the holdouts will then need to agree to extend it.

Even so, Argentina is likely to proceed swiftly to make the payment after US Treasury Secretary Jack Lew last week urged Argentina’s finance minister, Alfonso Prat-Gay, to pay all holdouts “as quickly as possible”.

Indeed, before the announcement that the roadshow would begin on Monday, local market operators in Buenos Aires had expected it to take place during the following week beginning April 18.

Mr Prat-Gay is already canvassing for funds from multilateral lenders at the Inter-American Development Bank’s annual meeting in the Bahamas on Friday, marking the beginning of an intense 10-day fundraising tour that will culminate with the IMF and World Bank Spring meetings on April 15–17.

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