Economy
Related: About this forumMore than $65 billion in orders for Argentina's first international bond offer in 15 years.
Argentina got an enthusiastic welcome back to the club of borrower nations on Monday, amassing more than $65 billion in orders for its first international bond in 15 years.
An international bond market exile since defaulting on its debt in 2001, the country clearly won over investors with a nearly $15 billion bond offer four times oversubscribed. The surge in demand for the bond, which will price on Tuesday, allowed Argentina to set pricing guidance close to its optimistic funding costs for the ground-breaking deal.
The proceeds will be divided between recent settlements with holdout bondholders ($8.5 billion) and local balance of payments deficit financing needs. Litigant bondholders who rejected the terms of Argentina's 2005-10 debt restructuring and filed suit for a better payoff will have first dibs on the proceeds of the transaction. These holdouts, led by Paul Singer's hedge fund Elliott Management (Cayman Islands) and Aurelius Capital (London), will get about 75% of what they had claimed under the agreement.
The $8 billion payout to holdouts (including $4.65 billion to four vulture funds, led by the two above) was touted by the Mauricio Macri administration as a way to put aside years of messy litigation and re-open the capital taps to help fund his ambitious overhaul of Latin America's third-largest economy.
The success of today's sovereign bond offer - the largest since Mexico's in 1996 - allowed Argentina to tighten pricing significantly across most of the four-tranche bond on the back of the order book.
It set guidance of 7.5%-7.625% on the 10-year tranche - the centerpiece of the offering - from initial price thoughts of 8%. The yield on the 30-year tightened at guidance to 8% from initial thoughts of 8.5% over the 10-year yield. At the short end of the curve, guidance on the three-year was set at 6.25%-6.50% and on the five-year at 6.875%-7.125%.
At: http://buenosairesherald.com/article/212823/more-than-us$65bn-in-orders-for-argentinas-first-international-bond-in-15-years
While certainly good news for Argentina at first blush, it's a shame that more than half of these proceeds are going to holdout bondholders (mainly vulture funds) which when bonds are restructured typically aren't given the time of day by the courts anywhere.
In a broader sense this also heralds Argentina's return to the same vicious cycle of borrowing at high interest just to make interest payments - a risky policy indeed.
Travis_0004
(5,417 posts)Argentina is to corrupt to issue bonds in their Jurisdiction, so they issue bonds in New York Jurisdiction, so they can't complain when US laws are followed during a lawsuit.
I don't think its a bad thing when a country actually pays off its debt.
forest444
(5,902 posts)Right.
A HERETIC I AM
(24,370 posts)why did you put in bold text the words " four times oversubscribed." ?
forest444
(5,902 posts)The $67 billion in orders - even if most had to go unfilled - made this the most sought after bond, of any type, in Third World history. The total actually sold ($15 billion) makes it a close second to Mexico's (Treasury Department-backed) $16 billion bond issue as part of its bailout in 1996.
Does that necessarily make this a good idea? That part's very debatable.
I would note to those who tout this as unvarnished good news (mainly right-wingers) that, by Economy Minister Prat-Gay's own admission, $11 billion of this bond issue (70%) is merely going to settle holdout lawsuits - including Paul Singer's $2.2 billion (an 1,180% return). That leaves $4 billion to cover Central Bank losses stemming from Macri's own sharp devaluation four months ago.
So at best, it's a mixed bag. We'll see.
A HERETIC I AM
(24,370 posts)Even the most profitable companies in the world access the bond market and every modern economy issues sovereign debt.
forest444
(5,902 posts)It remains to be seen how long though, especially since even the most basic legal rights are bring waived in this bond issue - including RUFO and pari passu clauses, which these bonds lack (incredible, given what they just went through with vulture funds).
This means of course that bad faith players such as the vulture funds now have a built-in incentive to try to engineer another default in the future, regardless of Argentina's ability to pay. Indeed, these bonds include so few protections for Argentina that the vulture funds probably wouldn't even have to bribe a judge this time.
So, yes. Assuming none of the above issues become a problem going forward, this has the potential of opening the door for further international borrowing in the future - which, as you pointed out, most nations need to some extent.
If nothing else it certainly makes for a good headline, particularly in the business press.