Argentine provincial governments target local currency financing

Argentine provincial governments target local currency financing

Debt Capital Markets Argentina

Argentina’s provinces will gradually diversify their debt portfolios by increasing the share of peso-denominated debt, helping them avoid exchange rate volatility, finance ministers and analysts said Wednesday.

“We would like to do more in pesos,” Lisandro Nieri, Mendoza’s minister of finance, told LatinFinance at its inaugural Argentina Sub-Sovereign and Infrastructure Finance Summit in Buenos Aires.

“Our income is in pesos,” he said. “So we can either maintain a mix of currencies that shield us from a shock if there is a change in the exchange rate, or we can sell more debt in pesos.”

Sebastian Katz, sub-secretary of finance in Buenos Aires, the country’s most-populated province, said he was targeting a 50:50 mix of pesos and foreign currencies.

“We would like to be more balanced,” he said. Buenos Aires province has around 60% of foreign currency-denominated debt denominated, he said.

Katz declined to say when the province could go to the market with a local-currency bond. “We are looking very carefully for the right time to do this,” he said.

Juan Manuel Pazos, head of strategy at Puente, a local financial services firm, said there was investor appetite for peso bonds.

“The demand is there,” he said. “Investors want long-term instruments in pesos."

Pazos also said issuing peso-denominated debt would be expensive in the short term, but added it was still attractive.

Argentina’s central bank has kept interest rates high, now at 28.75%, in a bid to reduce inflation from 22.7%. The bank has a target of around 15% for 2018 and aims to reduce this to single digits in 2019.

While this keeps borrowing costs in pesos high, demand for local-currency debt outweighs the short-term costs if the provinces can use the funds to reduce spending or improve infrastructure.

“The most expensive money is the money that is not there,” Pazos said. “Today the money is available.”

While some question marks remain over whether Argentina's sub-sovereign issuers will take advantage, the province of Chaco's minister of finances, Cristian Ocampo, said his administration had created a portfolio of more than 160 infrastructure projects to capitalize on improving conditions for taking on debt, including that denominated in pesos.

“We want to be ready when the market window is open,” he said.