Argentine Bond Issuance Presents Opportunity Through the Headwinds

As Argentina steps from the shadows and reenters the international credit markets, spurred by a new market-friendly president, trade insurance company Euler Hermes has upgraded the nation’s risk rating. However, headwinds like inflation and subdued commodity prices still cloud the picture of its economic future.

In its latest country report on Argentina, Euler Hermes upgraded the country’s risk rating to C4 from D4 in light of the settlement with holdout creditors and the subsequent $16.5 billion bond sale on April 18, which represented the largest bond sale in emerging market history. The bond offering was four times oversubscribed for all maturities with an average interest rate of 7.1%, noted Ludovic Subran, chief economist with Euler Hermes. “The crucial point to be made is that all this reflects and affects investor confidence,” he said. “The tide has turned ever since Mauricio Macri won the presidential run-off at the end of 2015 and has begun to steer the country’s economy in a new direction.”

Still, 2016 will mark the beginning of significant adjustment period as Macri—who faces significant political opposition and does not hold an absolute majority in the Congress—attempts to implement capital controls and more credible national statistics. Argentina also faces an expected economic contraction of -1.2% this year and minimal GDP growth of 0.6% in 2017, Euler Hermes predicts. Subran said to expect inflation this year to top 40% and another devaluation of the Argentine Peso.

“The main challenge will be to find enough hard currency to meet external commitments without depleting foreign reserves too much,” he said. “Enhancing agro-competitiveness, reviving the ailing manufacturing sector and sanitizing the financial sector are among the important milestones to meet for a full recovery.”

- Nicholas Stern, NACM editorial associate

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