Investors who bought bonds in Argentina’s record-breaking sale have made $597 million in profit in just two days.
The bonds that were sold for $16.4 billion now have a market value of about $17 billion as of 12:11 p.m. in New York, according to prices compiled by Bloomberg. The notes, the first overseas debt sold by the country in 15 years, got bids from potential buyers for more than four times the amount offered, according to the government.
While the jump in prices speaks to investors’ confidence that President Mauricio Macri will succeed in his plan to bolster the economy and lure capital, it also signals that Argentina may have been able to issue at lower interest rates. The notes with maturities of three to 30 years were issued at yields ranging from 6.25 percent to 8 percent, already below average for similarly-rated countries.
"There’s high demand for Argentine paper, so those that got allocation are well positioned to gain," said Jorge Piedrahita, the chief executive officer at brokerage Torino Capital in New York. He sees more value in the shorter-term bonds. “We’re seeing that some are already taking profits.”
In his first months in office, Macri ended currency controls and allowed the peso to trade freely, raised prices for regulated utilities and, most importantly, made a deal with the holdout creditors left over from the country’s $95 billion default in 2001. Isolation from international markets caused by the legal disputes had cost the economy $120 billion, Finance Minister Alfonso Prat-Gay said last week. Some of the proceeds from Tuesday’s sale, the largest ever for an emerging-market nation, will be used to pay back creditors.
The $2.75 billion of three-year bonds climbed to 103.7 cents on the dollar, while the $4.5 billion of five-year notes and $6.5 billion of 10-year securities bonds both rallied to 103.5 cents. The country’s $2.75 billion of 30-year bonds, which were sold at 95.76 cents on the dollar, rose to 100.3 cents.
Yields on the bonds fell between 0.37 and 1.2 percentage point, meaning the country could have saved $104 million in annual interest payments had it sold the debt at Thursday’s prices.
The Finance Ministry didn’t provide an immediate comment on whether the country could have gotten lower yields on the sale based on the high demand. Prat-Gay told reporters Tuesday that with orders from more than 600 investors totaling $68.6 billion, he could have easily issued double the amount of bonds.
“It’s easy to say, ex post and with this price dynamic, that Argentina could have gotten cheaper financing,” said Hernan Yellati, head of research and strategy at BancTrust & Co. “The truth is that this would have been hard to anticipate because Argentina had to prove it could raise the funds to pay the holdouts and leave the default before it could trade at these levels.”
Yellati recommends the 10-year notes and estimates Argentine bonds will be trading on par with Brazil near the 6 percent level by the end of the year.
Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., and Banco Santander SA were global coordinators for the offer. Banco Bilbao Vizcaya Argentaria SA, Citigroup Inc., and UBS Group AG were joint bookrunners.
Morgan Stanley recommended buying Argentine debt in a note to clients, saying it was likely the country would see rating upgrades in the coming years. The South American nation sold its 10-year bonds to yield 7.5 percent, below the 8.89 percent average for similar-maturity notes that share the securities’ B- rating from Standard & Poor’s, according to data compiled by Bloomberg.
Argentina’s credit rating was raised to B3 from Caa1 by Moody’s Investors Service ahead of the sale.
“Argentina is one of the few positive credit stories in emerging markets and had been out of the market a long time,” said Siobhan Morden, head of fixed-income strategy for Latin America at Nomura Holdings Plc. “They had already tightened the pricing, but people have to own it and people want to own it.”
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