Argentina Lights a Candle of Hope

Ignacio Olivera Doll & Kevin Simauchi, "Milei gets vote of confidence in wave of Argentine debt sales"

Argentina’s largest companies are rushing to issue dollar debt, a tentative sign that Javier Milei’s shock therapy is starting to restore investor confidence.

Argentina’s largest companies are rushing to issue dollar debt as yields tumble, a tentative sign that President Javier Milei’s shock therapy is starting to restore investor confidence in the economy.

Banco de Galicia y Buenos Aires SAU, the country’s biggest private lender, sold US$325 million of bonds due 2028 abroad at a 7.875 percent yield this month, while YPF Luz, the power unit of state-owned driller YPF SA, issued US$420 million of eight-year notes yielding 8.2 percent. State-owned Banco de la Nación said it’s planning a return to international capital markets for the first time in some 30 years.

The sales are the latest of a series of deals that have raised just over YS$4 billion in hard-currency debt this year, the most since 2017, according to data compiled by Bloomberg. While the prospect of monetary easing in the United States has boosted demand for high-yield bonds, Milei’s determination to balance the budget, reverse the flight of dollars out of the country and stamp out inflation have played a large role in the comeback, investors say.

“Investors are looking for yield from issuers which could benefit from positive catalysts like Argentina’s ambitious turn towards more orthodox economic policies,” said Alexander Robey, portfolio manager for EM debt at Allianz Global Investors GmbH in London.

Galicia, which raised the cash to pay for its purchase of HSBC’s Argentina branch, received offers quadruple the amount sought, according to people with knowledge of the matter, who asked not to be identified because the transaction was private.

As demand rises, Vista Energy, S.A.B. de C.V. said it would issue up to US$150 million in notes the week of October 7, while Grupo Albanesi plans to refinance its dollar debt that falls due over the next three years.

Mounting optimism over the state of the Argentine economy has pushed the spread between its sovereign debt and their US pars to 1108 basis points according to a JPMorgan index, the lowest since September 2020.

Meanwhile, the yield on about 80 percent of Argentine corporate international bonds with at least US$100 million outstanding has fallen below 10 percent. In August 2023, only 27 percent of the bonds were yielding single digits, according to Francisco Schumacher, a corporate strategist with BancTrust & Co.

The drop in yields has opened the path for the City of Buenos Aires, one of the country’s issuers with the best profile, to sell as much as US$600 million in dollar debt between November and March.

“We’re firing up the engines,” said Abel Fernandez Semhan, the city’s finance undersecretary. “We’re making the formal process to choose a bookrunner and monitoring the spread compression for Argentina‘s regional bonds.”

Limits

For now, the issuance wave has been largely limited to companies that have easier access to dollars, while those that have revenue in pesos have remained on the sidelines. Banco Galicia is the exception as it begins to resume large-scale lending in the local market after years of just buying government debt.

“Currency match means lower risk,” BancTrust’s Schumacher added.

Edenor, a power distributor with revenue in pesos, attempted to tap money managers for a US$400 million, seven-year dollar bond last month. The deal failed to materialise as the firm sought a yield under 10 percent, while investors demanded 11.125 percent, according to people with knowledge of the matter. The utility is currently reassessing when to go back to the market, one of the people said.

An Edenor spokesperson declined to comment. The company said on Thursday that it would attempt to swap its senior unsecured notes due 2025 for ones due in 2030.

Still, money managers are confident the flurry of deals could continue.

“If President Milei’s economic adjustment program continues to be successful, we expect the Argentine corporate space will continue to broaden in range and depth,” Allianz’s Robey said.