LatinFinance - May/June 2017 - 23

An October mandate?
Macri's reforms may be slower to take
effect than many would like, but already
investors are responding to the government's moves to cut spending and reduce
deficits of the provinces. The changes send
the right signal, Ferro says. "The question
is whether they can stay over the years to
make a transformational change."
An early indication of Argentina's
embrace of Macri's policies could come
in October, when the country holds legislative elections. "We aren't overly worried about it, but obviously political risk
remains the main risk in Argentina," says
Aberdeen's Bevan. He does not expect any
opposing parties to score a major victory,
leaving the current administration with the
upper hand.
If Macri's party performs well in the
election, it could have a long-term impact
by reconfirming a mandate for change,
says Miguens.
Indeed, if reform-focused political
parties gain seats, investors are likely to
become increasingly optimistic about the
possibility of Macri's reelection in 2019. If
such parties lose seats, market confidence
in the road ahead may wobble.
"If Macri loses his support, we will likely
see a bit of fiscal slippage," says Newman.
Going local
Despite the surge in cross-border bond
sales from Argentine issuers, the local
market holds increasing allure for the
country's borrowers.
"Other than infrastructure there is not
much need for large dollar financings, as
most of companies' balance sheets are
peso-denominated," Bendersky says.
In a reflection of that, the government
has worked to deepen the local bank and
capital markets. A tax amnesty introduced
by the Macri administration has encouraged Argentines to repatriate assets held
overseas. Argentines were incentivized
to bring their cash onshore through tax
breaks if they invested in closed-end
mutual funds or government bonds for
five years.
An influx of fresh cash under this initiative has allowed local banks to hold dollars
and lend cheaply, Bendersky adds. By
tapping short-term financings of one to
two years at 1.5% rates, many businesses

are borrowing locally, reducing the need to
raise funds in international markets.
For bigger borrowing needs, businesses
with peso-denominated balance sheets are
also turning to local currency bonds marketed internationally. Investors are drawn
to the offerings due to the high interest
rates, with coupons deep into double digits,
and Argentina's declining inflation rates,
Miguens says.
A rosy three-month horizon
Bankers are confident that bond sales will
continue through the middle of the year.

Already, energy deals are finding a
market. Genneia, a renewables company,
raised $350 million for a project to expand
wind power facilities in Argentina. Stoneway Capital, a power generator part-owned
by Siemens, raised $500 million to construct four new thermal-powered projects
in Buenos Aires province, valued at $637
million and with a combined capacity of
686 MW.
The list goes on. As Argentina seeks to
renew its energy infrastructure, which has
been starved of capital for over a decade,
many corporates in the area have sought

Source: Reuters

Investors, though, were handsomely
compensated: the five-year bond boasts a
15% coupon.

GOING UP: As Argentina's bond boom extends, borrowers are expected to seek financing for wind
farms and other energy projects

Issuers including Banco Macro and the
province of Santa Cruz were in the pipeline
as of late April.
"The pipeline continues to be very
robust and we have a lot of deals coming in
the next couple of months," says Miguens.
Indeed, official forecasts indicate that
the surge of bond sales out of Argentina has
much further to run.
"The government has forecast between
$4 billion and $5 billion in corporate issuance for the year, and about half of that has
been done," Bevan says.
Now that the sovereign, provinces and
better-known corporate names have paved
the way, investors can look forward to deals
from lesser-known companies, Newman
says.
Bankers and investors expect heightened
activity from utility companies and banks.
Several energy companies are eyeing
their chances to issue. One, Central Puerto,
said in September that it planned to issue
up to $1 billion in debt.

funding from the capital markets.
"Almost all corporate issuance has been
in the energy sector," Miguens says.
More project-specific deals, such as
Stoneway's, may come to the market now,
predicts Peter Wietrak, an emerging markets credit analyst at Invesco.
"High quality companies can always
come to the market, but later this year you
will see more utility companies, given the
objectives of the Argentine government to
auction off more power generation projects," he says.
Those auctions may spur more borrowers into the capital markets, says Aberdeen's Bevan.
But there are limits on how long the run
of new bond sales will continue. Indeed,
many see a deadline looming in the northern hemisphere's summer.
"Most of the activity will happen before
the summer," Bendersky adds. "By the fall,
issuers and investors will be monitoring the
Argentine legislative elections." LF

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