GDP coupon costs Argentina ARG$2.45 BL

Former Economy Minister Roberto Lavagna

GDP coupons will pay on December 15 a 14-per cent premium with respect to current values. Argentine Economy Minister formally confirmed on Friday how much payment of each GDP-linked unit had climbed.

We are talking about the second payment that Argentina will make, after December 2006's. In this case, it's related to growth excess posted last year and it will entail a total of ARG$2.45 billions.

For the following year, coupon holders also have a new payment, though for a greater figure, hovering around ARG$4 billions. This is because growth posted this year will go beyond 8 per cent and it may come closer to 8.5 per cent, as it happened in 2006.

Payments

According to data disclosed by Finance Secretariat, this payment includes each series of GDP unit.

Dollar-denominated coupon: every 100 units, $1.318 will be paid. As it currently quotes at ARG$12, payment represents an 11-per cent yield. Of course that, once the obligation comes true, market price will surely fall automatically. If that's not the case, current holder will reap handsome profits.

Peso-denominated coupon: figure set every 100 units hits ARG$1.383. As quote plummeted lately to ARG$9.95 (swept along by bonds in domestic currency), an almost 14-per cent yield in domestic currency is involved.

Euro-denominated coupon: $ 1.262 euros will be paid every 100 units.

Yen-denominated coupon: $1.45 yen every 100 units.

These GDP-linked units were created by former economy minister Roberto Lavagna in 2005 debt renegotiation to give incentives to investors entering swap. However, value set by then was negligible, so its issue should have been avoided. Clearly, fiscal cost this coupon is starting to have is much higher than the benefit it generated by that time to convince those undecided to accept such transaction.