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Argentina gets warm investor welcome on return to credit markets

Tuesday, April 19, 2016 - 18:52

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Global investors gave Argentina's return to the sovereign debt market a warm welcome with demand for its first bond offer in 15 years vastly outstripping supply, a source close to the matter said Tuesday.

[BUENOS AIRES] Global investors gave Argentina's return to the sovereign debt market a warm welcome with demand for its first bond offer in 15 years vastly outstripping supply, a source close to the matter said Tuesday.

Argentina aims to raise at least US$12.5 billion from the bond sale, with the operation expected to be completed by the end of the day.

Demand for the bonds is "close to US$70 billion", the source told AFP, which would make the issue nearly five times over-subscribed.

Latin America's third-biggest economy is seeking to end its financial isolation by borrowing cash on world credit markets for the first time since a 2001 default.

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Argentine newspaper La Nacion cited sources involved in organising the debt auction as saying that the government had received offers worth $67 billion.

The country is looking to boost its struggling economy and settle a 15-year lawsuit by US investment funds that its ex-president Cristina Kirchner branded as "vultures." Some reports said the government planned to issue as much as Argentina gets warm investor welcome on return to credit markets$15 billion in medium- and long-term bonds, after a US court cleared the way for Argentina to start borrowing again. This would give the government some financial leeway even after the international funds, known as "hold-outs," have been paid off.

"Argentina is back," said Finance Minister Alfonso Prat-Gay in Washington ahead of the sale.

Maturities on the various bond tranches are for 3, 5, 10 and 30 years.

The issue is the biggest Argentinian cash call on markets in two decades.

Argentina's new conservative president Mauricio Macri has claimed the return to the international financial fold as a victory.

His opponents said poor families would bear the cost of his borrowing since public spending cuts would be imposed to pay off the debts eventually.

Mr Macri has been scrapping Ms Kirchner's protectionist policies and opening up Argentina's diplomatic and financial ties.

He has removed currency controls and raised utility prices, triggering angry protests from Argentines who say their spending power is declining.

The bond sale "is a major step forward," Agustin Carstens, head of the IMF world lender's Monetary and Financial Committee, said Saturday.

"It is very good to have a country as important as Argentina putting the house in order." He warned, however, that Argentines would have to endure tough economic cutbacks to stabilise the economy and public finances.

"Needless to say in the short term some measures may be difficult to digest," Mr Carstens said in Washington.

The IMF forecasts that Argentina's economy will contract by one per cent this year and grow 2.8 per cent in 2017.

Prat-Gay has given a stronger forecast of around zero growth this year and growth of up to four per cent next year.

South American countries generally borrow at 3 to 4 per cent interest.

Citing Argentina's credit history, analysts forecast the country would have to offer a higher rate of up to 9 per cent in its new bond issue.

But given the strong demand, yields are now expected to range from 6 to 8 per cent across the maturities on offer.

After the 2001 crisis, some Argentines object to taking on new debt - not least Kirchner and her allies.

"Once again history is repeating itself and catching the Argentines out. Debt, devaluation, layoffs, political persecution, price rises," Kirchner said in a speech last week.

"These are just a few of the calamities that the new government has caused in barely four months." Macri on Saturday announced a series of social welfare measures that he said would help the poor cope with the cuts.

The finance ministry said it has enlisted Deutsche Bank, HSBC, JP Morgan, Santander, BBVA, Citigroup and UBS to organise the bond sale.

It has included a clause to prevent a small number of shareholders from blocking the restructuring of the debt.

That is a measure to avoid a repeat of Argentina's fight with the "holdouts," international investment funds that sued it in the US courts for full repayment after its 2001 default.

Credit rater Moody's raised Argentina's sovereign rating on Friday ahead of the bond sale.

It still ranks as a speculative investment with a "high credit risk," but less high-risk than before.

AFP

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