Argentina seeks today $250 ML at 10.5%

Finance Secretary Sergio Chodos

With a strong participation of Retirement and Pension Funds Administrative Bureaus (AFJP, in the Spanish acronym) and some official banks, Argentine administration will return today to markets with a modest bond issue. There will be $250 millions of BONAR X (10-year term), which rate may settle between 10.5 per cent and 10.7 per cent in dollars. The amount may be increased if the yield settles below those levels.

The last transaction of this kind happened six months ago, before subprime crisis. It was on May 10, when $750 millions in BONAR X were issued at a rate lower than expected, 8.44 per cent annual.

Although a relatively high yield will be paid, Argentine Economy Ministry made every effort to take advantage of inflow to AFJP to finance itself.

In August, Argentina had issued $500 millions to Venezuela, but it was a direct placement of BODEN 2015. On that occasion, the country paid a 10.66-per cent annual rate, the highest level of the year. Investors' uncertainty about Argentina's situation, and particularly about meddling of Argentine Statistics and Census Institute (INDEC, in its Spanish acronym), lashed sovereign bonds, which had scarcely recovered their prices since then.

Offer

Finance Secretariat, headed by Sergio Chodos, offered to make settlement both in pesos and in dollars. Those interested can submit their orders till today Wednesday 2 p.m.

The key of today's transaction will be participation of institutional investors. Pension funds in particular were forced to bring 20 per cent of their holdings in foreign lands, equivalent to around ARG$1.8 billion. It's clear now that at least one portion will be allocated to buy sovereign bonds in this transaction. All in all, they have changed Brazilian stocks (climbing more than 60 per cent in dollars so far 2007 and probably further up if the country is rated "investment grade" next year) for Argentine bonds. Part of these funds would be thrown into domestic market.

Throughout 2008, AFJP will have to bring almost total funds kept outside Argentina (they will be allowed to hold only 2 per cent). It's estimated that this will be a plan Treasury Palace will have at hand when needing liquidity from market.

Funds obtained in this placement will be allocated to cancel December maturities, which add up to more than $2.2 billions. This figure is mainly explained by payment of GDP coupon, the second of this kind after the one made at the same period of 2006.

Argentine administration will also receive (probably next week) around $350 millions from IDB, which will in turn help to close the year.