Argentina's first dollar-denominated bond issue since it defaulted on its debt in July has flopped, dealing a blow to government efforts to shore up its low foreign reserves. Economy Minister Axel Kicillof said on Friday that Argentina received offers worth just $286 million, far below the $3 billion of Bonar24 paper offered by the government. The economy ministry later said all bids were accepted.
The inflow of dollars from a successful sale would have soothed tensions in Argentina's currency markets going into an election year. Argentina has used its reserves over the past four years to prop up the currency. They currently stand at $30.2 billion, boosted from a 2014-low of $26.9 bln by currency swap loans from China.
The country's debt servicing costs will double next year to nearly $9 billion, Thomson Reuters calculations show. Whether Argentina returns to the negotiating table with a small group of US junk debt specialists, whose legal battle led the country to default in July, will almost certainly depend on the state of the stagnating economy.
For that reason, Friday's results may be a setback. Even so, the government's attempt to issue high-yielding debt may indicate President Cristina Fernandez will not offer the "holdout" hedge funds better terms than those already rejected. "The government has shown it is willing to accept high rates in an issuance instead of negotiating with holdouts," said Alejo Costa of Buenos Aires-based investment bank Puente.
Echoing other financial analysts, Costa said Argentina could return to the market again with more attractive terms. "This time it didn't work out, but maybe in 3 months if they offer better rates, it will," he said. Fernandez is constitutionally barred from running for president again.
Since the July default, Argentina has battled to quell market speculation that it will struggle to service its debt next year. When he announced the Bonar24 top on December 4, Kicillof also said holders of another dollar bond due in 2015 could take early payment or swap out for the Bonar24. Analysts saw the debt swap as a way for Argentina to ease its debt schedule next year.
On Friday, the minister said investors holding $377 million worth of Boden15 notes due next year had opted to swap out their bonds for the Bonar24 paper maturing in 2024. Other creditors holding $285 million worth of the Boden15 took the offer of advance payment. Kicillof described the low take-up of the cash payment as a "confidence booster" that showed investors were confident enough to wait another year for their payout. Fund managers had said the pricing of the cash payout offered insufficient incentives.
Guillermo Nielsen, who as finance secretary helped push through Argentina's tough debt restructuring after its record default in 2002, said the Bonar24 sale was handled poorly and showed a disconnect between Argentine officials and the market. "Usually, you have something arranged with a couple of banks, the logical thing is to already have at least half of an offer already placed," Nielsen said. "There were no incentives."
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