Argentine provinces and companies are preparing to access global markets in the coming weeks, as President Javier Milei’s victory in the midterm elections enhances optimism regarding the country. This development creates an opportunity for debt sales that could inject essential dollars into the nation’s foreign-exchange market. This week witnessed a surge in bond activity, spearheaded by oil companies YPF and Tecpetrol. The former required banks to conduct investor meetings to facilitate the reopening of its dollar notes maturing in 2031, whereas the latter was actively engaged in the market on Wednesday, issuing dollar debt. All information is sourced from individuals acquainted with the offerings, who requested anonymity due to the non-public nature of the information. The transactions represent merely the beginning of what investors anticipate to be a more extensive pipeline of debt issuances to come. Sunday’s vote offered traders essential reassurances regarding the continuity of Argentina’s economic reform agenda, as Milei significantly increased his party’s representation in Congress and adopted a more conciliatory tone. The nation’s risk premium, as indicated by five-year credit default swaps, declined by almost 600 basis points following the outcome, while dollar bonds experienced a significant increase.
The anticipated surge in issuance occurs concurrently with a prevailing sense of optimism surrounding risky assets. Investors in emerging markets are increasingly optimistic about junk bonds, seeking the lowest premium in over five years to transition from investment-grade to high-yield debt in their pursuit of yield. Banks are advising issuers, ranging from corporations to provincial governments, to aim for a minimum of US$500 million in their offerings, according to sources. Transportadora de Gas del Sur, commonly referred to as TGS, is in the process of preparing a new issuance estimated at approximately US$500 million, as reported by sources with knowledge of the situation. Pan American Energy, a prominent player in the nation’s crude export sector, along with oil and gas driller CGC, is reportedly contemplating the issuance of dollar bonds, according to an informed source. Buenos Aires City is engaging with banks this week to devise a strategy for issuing up to US$600 million in debt on international markets. Meanwhile, Santa Fe Province is considering a distinct transaction potentially reaching US$800 million, which would include approximately US$500 million in new financing, with the balance allocated for a buyback or an exchange offer. These transactions were being evaluated in early September; however, the increase in political risk following Milei’s disappointing performance in a local election compelled issuers to postpone their plans.
Chubut Province emerges as another potential issuer, with documentation having been prepared for some time. Officials perceive a favorable window for action, although a definitive decision remains pending, according to one source. Provincial bond sales require the endorsement of the national government. According to central bank regulations, issuers are required to sell the dollars they acquire in the foreign-exchange market. Pan American Energy and TGS refrained from providing comments, whereas CGC did not promptly reply to an inquiry for information. Authorities in Buenos Aires City, Santa Fe, and Chubut have also not provided a response. Fresh dollar inflows from corporate bond sales are expected to provide some stability to the nation’s battered peso in the short term. The currency remains subject to significant volatility, experiencing a surge on Monday, only to retract a substantial portion of that gain in the subsequent session, approaching the limits of its trading band once more before recovering on Wednesday. Argentina has committed to maintaining the managed float scheme in its recent agreement with the International Monetary Fund; however, traders perceive this approach as unsustainable over the long term.
“With inflation at two percent and the bands at one percent, the real exchange rate will continue to appreciate, leading to potential issues,” Resico stated. The timing holds significant importance for the government. Farm-export receipts, which serve as the primary source of hard currency for the country, have diminished following an incentive that accelerated sales into September, resulting in a scarcity of dollars in the market. New capital from Argentine firms and regional governments would assist in addressing that shortfall. Analysts suggest that the supply of dollars may increase in the near future as companies and households reverse positions established in expectation of a disappointing performance by the government in Sunday’s election, which ultimately did not occur. “New issue activity was very limited before the election as country risk spiked,” stated Cristian Fera. “In light of the recent outcome and the subsequent increase in confidence, there is a palpable eagerness among participants to engage.”