One year after Argentina emerged from its latest sovereign bankruptcy, and at a time when the Latin American nation grapples with a surging budget deficit, Argentina surprised markets by announcing (on Twitter) its intention to sell its first 100-year bond, taking advantage of a world starved for yield.
The issuance, expected to price on Monday with a potential yield of 8.25% according to Reuters IFR – we expect this number to come down as the offering will likely be many times oversubscribed – came as a surprise, as Finance Minister Luis Caputo has said Argentina would meet the rest of its financing needs in non-dollar currencies after selling $7 billion in dollar bonds in January. According to Reuters, Citi and HSBC are acting as lead book runners on the deal, while Nomura Securities and Banco Santander are co-managers.
“Good for them,” Seaport’s Michael Roche told Bloomberg. Not surprisingly, he recommends buying the bonds given the juicy 8.25% yield. “Spreads are low and looking stalled, so they should lock them in for as long as possible.”
Argentina, which has repeatedly defaulted on its sovereign bonds, and will eventually do the same with this latest batch as there is no way the country can remain solvent for the next century, battled for years with its creditors before reaching a settlement with an Elliott-led group in 2016 which allowed it to re-enter the global credit markets.
With the sale, Argentina will join Mexico, Ireland and the U.K. in selling debt that matures over a century. While Argentina issued last year what was at the time the largest emerging-market bond issuance on record, the move will test investor resolve in Argentina. The country is trying to close its fiscal deficit and has defaulted seven times in 200 years.
In 2015, Argentina’s president Mauricio Macri was elected on the promise of “normalizing” Argentina’s economy and financial markets after years of heavy state intervention and non-payment of international debt obligations under the previous government. Little did he know just how “supercharged” the normalization would be courtesy of the world’s central banks.