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"The government hopes to return to the markets during September"
La Nacion
August 17, 2010

If the global financial climate continues apace, it will be the first international emission in 9 years

By Javier Blanco

While completing the details to finish the final paperwork of the recent swap (in ten days they expect to end the identification process of the small bondholders that accepted it to make it possible to send the cash through which they'll recognize overdue interest), the Economy Ministry moved ahead in recent weeks in the tasks of "warming up" to reach the conditions by September to return to the international capital markets after nine years of absence, always and only if the financial climate continues apace.

"There isn't any transaction in the pipeline. We are making an exhaustive overview of the market and we are noting that the country appears to have returned to the radar of large investors, which is good because it improves the conditions for pulling together the objective of returning to the market. This is not to say that we are going to run out there at the first window of opportunity that opens, because we're in the position to choose the moment because this year is covered. But September will be an important month," a high level source from the team told LA NACION.

The reference points to the moment in which the boreal summer is beginning to end and the large financial centers of the world recover activity. This month there were little to no sovereign emissions, while in the last days of June, there were placements from Brazil (at 4.54%), Belarus (at 8%), Barbados (at 7.2%) and Chile (at 3.9%).

But the seasonal slowdown was functional: August is the month in which here the government intensifies its calculations for putting next year's budget together, which includes the financing gap to cover and allowed to buy time to close the recent swap and move ahead in the strategy with which it will try to close the door to possible embargoes.

In recent days, only Venezuela held a debt emission, which captured US$3 billion to return in 12 years at a rate of 12.75% a year after receiving a downpour of offers for more than US$9.2 billion, according to a report from that country's Finance Ministry yesterday. But the information has to be taken in context. As it is a bond in dollars but could be bought in bolivars, the subscription was mostly local, because it gave Venezuelan businesses and citizens the chance to get currency on the margin of the iron-fisted control of exchange markets, then allowing them to sell them abroad to legally obtain dollars if they don't want to assume the risk of waiting twelve years to collect.

"We don't have seasonal nor interest rate goals, because we don't want to face tight situations. But we aspire to a rate according to the good fundamentals that the Argentine economy is showing today," they insist on Amado Boudou's team, while that doesn't mean that they have a lot of time.

The first estimates indicate that, should the current dynamics of the economy hold (high growth with an inflation rate triple that of the peso's devaluation), the Treasury will need to cover US$17 billion in 2011: some US$10 billion could be covered appealing as in recent years to the rest of the public coffers (ANSeS, Central Bank and debt placements at other dependencies, like the Lottery), but thus there would still be a gap of US$7 billion.

Need is not a heresy, but

Of course this number doesn't contemplate the chance that opposing legislation advances including higher spending (with bad liquidation of pensions the government accumulated a balance of 14.5 billion pesos, which would be the cost of the generalization of the "Badaro decision") or less revenues (cutting export taxes or co-participation in the check tax), possibilities that shouldn't be ruled out.

Also, in these circumstances, the option to turn to the reserves, which showed itself to be onerous for the whole population due to it provoking the current monetary overflow (leaving Treasury to take pesos out of the market to buy dollars again), this time appears headed for veto by discounted parliamentary resistance.

For that, it's understood that the government will see itself pushed to innovate. According to what LA NACION established, the official strategy for 2011 will seek two goals: to alleviate the debt maturities by trying a friendly refinancing of the heaviest ones and cover the rest with some new emission that, in addition to oxygenating the Treasury, serves to reinsert local businesses in the international financing market and facilitate conditions to reach agreement with the Paris Club.

To lower payouts in 2011, there are two bonds in dollars in the spotlight: the Bonar V, a bullet bond (pays in full on maturity) that amortizes at the end of March, and the Boden 12, the 'corralito' bond, which should return its second-to-last payment at the beginning of August. "To manage to postpone 100 percent of these services, the Nation would reduce by 40% the payments in foreign currency that it has with the private sector for that year," said the consulting firm Delphos Investment.

This, the most important payment of 2011 would end up being that of the GDP coupons, estimated at US$2 billion. But if it's done on December 15th, it will be an issue for the administration that follows. Yesterday, the rate on US Treasury bonds at 10 years fell to 2.56% annual, its lowest in 17 months, which in fact is inciting funds to go out looking around the world for better yields.

THE EXTRA BENEFITS OF A GOOD EMISSION:
* Default: it would serve to certify that the financial world has closed that chapter and would strengthen Argentina's position to handle itself against embargo requests.
* Ratings agencies: they would be obliged to improve the sovereign rating. Moody's put it forth as a precondition for doing so.
* Country-risk: it would contribute to a lowering of that rate because, to post Argentina up on the EMBI board, it would oblige international investment funds to buy more Argentine bonds.
* Resources: it would head off the government going back to try to use reserves to pay debt.
* Access to funds: it would reinsert local businesses into the market with chances to get deals to finance investments.
* Relations: it would be another step toward normalization of relations with the international financial community.

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