Argentina’s IRSA, YPF May Sell Foreign Debt on Swap (Update2)
March 16, 2010, 5:40 PM EDT(Updates prices.)
By Drew Benson
March 16 (Bloomberg) -- Argentine companies from YPF SA to IRSA Inversiones y Representaciones SA may sell overseas bonds for the first time in at least three years as prospects the government will complete a $20 billion debt swap reduce yields.
YPF, the Buenos Aires unit of Spain’s largest oil company, Repsol YPF SA, is considering its first international bond since 1999 as part of a program to borrow $1 billion, a person familiar with the plan said. IRSA, which last sold debt abroad in 2007, will tap markets if “conditions permit” under a $400 million borrowing program, the real estate developer said in a statement on March 12.
Corporate financing costs are falling after Economy Minister Amado Boudou said March 3 he expects to finish the debt exchange this month, paving the way for Argentina to return to global markets for the first time since its 2001 default. The yield on IRSA’s 2017 bonds dropped to 9.74 percent today from 11.72 percent on Oct. 21, the day before Boudou announced plans to restructure the debt, while YPF’s yield on 2028 notes fell 0.75 percentage point to 9.37 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
“A successful restructuring would most certainly bring yields down across the board in Argentina,” said Bevan Rosenbloom, a corporate debt strategist at RBS Securities Inc. in Stamford, Connecticut. “These are well-regarded credits that have been in the market before.”
Yield Spread
Argentine government yields relative to U.S. Treasuries -- which set benchmark rates for companies -- may drop 50 basis points, or 0.5 percentage point, after the country completes the debt exchange, according to Rosenbloom. Argentina’s spread has widened 30 basis points this year to 6.9 percentage points after narrowing more than 10 percentage points in 2009 as the global credit crisis eased, according to New York-based JPMorgan Chase & Co.
The government stopped servicing $95 billion of debt in 2001 and is still trying to settle with the owners of $20 billion of the bonds held out of a 2005 restructuring.
Argentine companies sold $695 million worth of domestic bonds last year, up from $403 million in 2008, according to the country’s securities regulator.
The only Argentine-based company to tap international markets since 2007 has been Arcos Dorados SA, the privately held owner-operator of McDonald’s Corp. restaurants in Latin America. It sold $450 million of 2019 debt in September to yield 7.63 percent. Telecom Argentina SA and Telefonica de Argentina SA haven’t sold globally since restructuring their debt in the wake of the government default.
Economic Recovery
“Economic growth this year will bring needs for more working capital, so we can expect debt sales to increase,” Daniela Cuan, a senior corporate debt analyst with Moody’s Investors Service in Buenos Aires, said in a March 9 telephone interview. Moody’s forecasts Argentina’s economy will expand 2 percent in 2010 after zero growth last year.
Argentine dollar bonds have lost 2.2 percent this year through yesterday, the worst performance in JPMorgan’s benchmark emerging-market index, amid mounting congressional opposition to President Cristina Fernandez de Kirchner’s plan to use central bank reserves to pay debt.
“We aren’t trying to make the country go into default,” said opposition lawmaker Juan Tunessi in a committee meeting yesterday. “This is a congress that wants to put limits” on spending, he said.
Pan American Bonds
The political feuding makes the government’s debt restructuring “less likely than before,” said David Rolley, a portfolio manager who helps oversee $139 billion as co-head of global fixed-income in Boston for Loomis Sayles & Co. “More and more of the congress feels safe opposing the presidency.”
Boudou, who said in October the settlement would be done by the end of the year, has pushed back the completion date three times.
A restructuring would help companies such as Pan American Energy LLC, the Buenos Aires unit of London-based BP Plc, that have sold international bonds before, RBS’s Rosenbloom said.
Pan American Energy, owned 40 percent by Bridas Corp., the oil producer that China’s Cnooc Ltd. agreed to buy a 50 percent stake in for $3.1 billion, last sold bonds overseas in August 2006. The yield on Pan American’s 7.75 percent dollar bonds due in 2012 has slid 71 basis points since Oct. 20 to 4.81 percent, according to Trace.
Credit Rating
Pan American Energy’s credit rating and position as the top oil exporter in Argentina will help it attract investors if it sells international bonds, Rosenbloom said. Pan American Energy’s foreign-currency debt is rated Ba2 by Moody’s, two steps below investment grade, and B+ by Standard & Poor’s. Argentina is rated B3 by Moody’s and B- by S&P, six levels below an investment-grade ranking.
The company’s rating is “supported by its ability to generate dollars through exports,” S&P analyst Luciano Gremone said in a March 12 telephone interview in Buenos Aires. Pan American Energy’s press office didn’t respond to an e-mailed request for comment.
IRSA’s board of directors expanded the company’s global bond program on Feb. 25, doubling it to $400 million.
YPF said in a March 4 filing with the U.S. Securities and Exchange Commission that it plans to issue $1 billion of bonds in domestic and international markets. The person familiar with the company’s plans said it will not seek to sell the entire $1 billion this year. YPF sold $70 million in dollar bonds and $37 million worth of peso notes earlier this month in the domestic market under the program.
The following is a list of events in Argentina this week:
--With assistance from Veronica Espinosa in New York. Editors: Lester Pimentel, David Papadopoulos
To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net
To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net
