8 de junio 2007 - 00:00

Peso-denominated bond launched despite drop

Argentine Finance Secretariat managed to achieve a lower-than-12-per cent rate by placing the first peso-denominated bond at fixed rate. With a demand exceeding initial goal by three times and a half, yield obtained hit 11.70 per cent fixed annual in domestic currency. Of course, there was a special contribution from Nation Bank, which bought more than ARG$200 millions, that's to say, around 13 per cent of total sought by Economy Ministry.

Auction of five-year BONAR Arg was a test for Economy Ministry, because it is the first bond with such characteristics. "This is the first time Argentina places a paper with these features. In the 90's, a peso-denominated bond was placed in international market, but, in fact, it was paid in dollars," the head of Finance Secretariat, Sergio Chodos, stated satisfied with the results. Moreover, he explained: "Our intention is to create a peso-denominated rate curve that the private sector can use as benchmark. Other countries of the region have already done so and we are following that path."

Inflow

With this placement, Argentine government has issued new papers for ARG$1.5 billions. However, inflow will be lower, ARG$1.43 billions, since they are placed at a lower nominal value (ARG$955 for every ARG$1,000 sheet).

A large number of foreign investors has also participated, keeping more than 90 per cent of issue. What's more, an ARG$150-million order from the banking entity Citibank at hurdle price let the rate settle below 12 per cent, which was the official goal.

Total bids between the competitive and non competitive tranche reached to ARG$5.26 billions. In sum, 230 bids were made altogether (only 11 went to the non competitive tranche) and most of them came from foreign entities.

"The result of this auction shows that INDEC's inflation data hasn't affected market,"
Argentine Economy Minister Felisa Miceli signalled, who admitted that "it won't be easy to improve the rate in the following issue." Treasury Palace has approved a ARG$4.5-billion program for the new five-year bond.

Attraction

Foreign investors are attracted by peso-denominated bonds because of their high interest rate. If dollar continues stable with respect to peso for a long time, 11.70 per cent in domestic currency becomes a similar yield in dollars. Compared to the 5 per cent annual offered by Treasury bonds, this is a highly appealing rate. This shows that market is not expecting a significant peso devaluation (if that were the case, the new bond would be bad business).

Moreover, Argentine Economy Minister Felisa Miceli has signalled that at least a portion of amount obtained with this issue will be allocated to debt maturities in domestic currency. All the same, the most important obligation of Treasury will come at the beginning of August, when almost $3 billions fall due for BODEN 2012 capital amortization.

Issues

A group of domestic entities is taking advantage of appetite for peso-denominated fixed-rate bonds. The bank Macro has issued $100 millions at 10.75 per cent in international market; Banco Río has made a three-year placement in domestic market (its rate reached to 11.3 per cent) and two other entities, Mortgage Bank and Comafi, have started seeking funding through a fixed-rate peso-denominated paper.

For banks, this entails obtaining long-term peso-denominated funding, having greater leeway to lend in market at fixed rate and in domestic currency. For government, this is a key piece of information, allowing a wider financing margin for investment.

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