Argentina's corporate issuers better positioned for a debt crisis
September 18, 2019 |
Companies have the cash to make payments, but they may find it difficult to issue new notes in current conditions, sources say
Argentina's corporate debt issuers are better positioned to withstand a potential sovereign default given their levels of cash on hand to service their debts, especially those in the energy sector, analysts told LatinFinance.
"Some corporates are more protected and insulated," said Sailesh Lad, the head of emerging markets fixed income at AXA Investment Managers. "They have the cash and can fund their coupons and amortizations."
The surprise drubbing of President Mauricio Macri in a primary vote in August triggered a run on the peso and Argentina's sovereign bonds, prompting the government to implement capital controls and ask investors to accept late payments on outstanding bonds. Macri came to power in 2015 promising to cut inflation and reform the economy. Instead, inflation has risen and the government turned to the International Monetary Fund for support in June 2018. The IMF's checkered history in Argentina, with many in the country blaming it for the last economic deterioration, put more pressure on Macri to deliver on his promises.
On the campaign trail, the front-runner Alberto Fernández has said Argentina is virtually in default and called for a renegotiation of the $56.3bn bailout from the IMF, negotiated in June last year.
The IMF is scheduled to make a $5.4bn disbursement next week, but it could delay payment until it knows more about the economic plans of the next administration.
"The complex market conditions and policy uncertainty going forward make the situation even more difficult," IMF spokesperson Gerry Rice said a press briefing last week. Rice added that the IMF will hold meetings with Argentine Treasury Minister Hernán Lacunza in late September, but he did not say if the fund will meet again with Fernández before the election on October 27.
Even if the government goes into default, according to Lad, some Argentine companies could go to the cross-border bond market to raise funds next year, although they might have to pay high premiums to do so.
"Under the right circumstances, if they are not too affected by the sovereign, some of these corporates may come to market," Lad said. "But I think they'll find it very difficult."
In AXA IM's case, the French investor has reduced its exposure to Argentine sovereign and sub-sovereign risks, choosing to focus on wealthier regions like the oil-producing province of Neuquén, but it is holding on to what it has right now without looking to add more debt, Lad said.
Many investors are likely doing the same thing, but distressed debt funds are probably buying Argentina's sovereign notes at a steep discount in the secondary market, he said.
According to Stuart Culverhouse, the head of sovereign and fixed income research at Tellimer, distressed debt investors will likely snap up sovereign notes when the prices fall to around 30 cents on the dollar.
"With some of the dollar bonds trading at 40 cents, there is still a downside," Culverhouse said.
Some investors have acquired Argentina's bonds at the current prices, but others are still waiting to hear more about the proposed economic policies under the next government, he said.
"There is still uncertainty about the direction of economic policy, what Alberto Fernández will do and where the IMF program will end," Culverhouse said.
In July, a month before the primary vote, the power utility company YPF Luz, a division of the state-run oil company YPF, received $925m in orders for a $400m bond deal and priced the seven-year notes with a yield 10.25%. The next month, however, the oil company Compañía General de Combustibles (CGC) scrapped a planned $400m bond sale as the market started looking toward the October elections.