World Economy

Argentina’s Return to Markets Oversubscribed 

Argentina’s Return to Markets Oversubscribed Argentina’s Return to Markets Oversubscribed 

Argentina has been given a rousing welcome back to international bond markets as it secured massive orders for its first debt issue since defaulting in 2001. Its new bond was five times oversubscribed.

Latin America’s third-biggest economy ended 15 years of financial isolation on Monday, receiving orders of about $67 billion for a bond issue totaling $15 billion. The order book is one of the largest ever seen for an emerging markets bond—even exceeding the $50-billion book for Brazilian oil firm Petrobras’s six-tranche debt worth $11 billion in 2013, DW reported.

It set guidance of 7.5% to 7.6% on the 10-year tranche—the centerpiece of the offering. At the short end of the curve, guidance on the three-year tranche was set at 6.2% to 6.50%, and on the five-year at 6.8% to 7.1%.

Deutsche Bank, HSBC, JP Morgan and Santander are acting as global coordinators on the bond sale, while BBVA, Citigroup and UBS are joint bookrunners.

“Argentina is back,” Finance Minister Alfonso Prat-Gay said in Washington ahead of the sale on Monday.

  Investor Enthusiasm

After ratings agency Moody’s raised Argentina’s credit worthiness on Friday, investors lapped up the bond issue, which was five times oversubscribed. However, the country’s debt still ranks as a speculative investment with a “high credit risk,” but less high-risk than before.

John Baur, a portfolio manager at Eaton Vance, called Argentina’s return to bond markets as a “very important step” in improving the economy of crisis-hit Argentina. “It is one of the few positive reform stories in the emerging markets space, where you are seeing economic liberalization,” Baur told the news agency Reuters, adding: “You are not seeing much of that anywhere else in the world.”

Agustin Carstens, head of the IMF’s Monetary and Financial Committee also called the bond sale a “major step forward” for the country. “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 stabilize the economy and public finances.

“Needless to say in the short term some measures may be difficult to digest,” Carstens said.

With the money, Argentina’s new conservative President Mauricio Macri wants to boost the country’s struggling economy and settle a 15-year lawsuit with US hedge funds over outstanding debt resulting from Argentina’s 2001 default.

Last week, a US court cleared the way for Argentina to start borrowing again, after holdout creditor—led by Elliott Management and Aurelius Capital—agreed to settle with 75% of the nominal bond value they had originally claimed.

The deal will cost Macri an estimated $6.5 billion, which his opponents said would be footed by poor families through public spending cuts.