News Center

Bullet-train's bank makes insurance against default increase
Ambito Financiero
July 09, 2008

By Guillermo Laborda

The market went ahead once again. Executives from the French financial entity Natixis were in New York last week trying to gain acceptance from the US$660 million in Argentine bonds they will hold. It's the paper that will be emitted by the government to pay for the initial work and other expenses of the bullet train to Rosario and Cordoba. Natixis is the one that in theory must provide the financing.

Obviously, having taken into account the difficult domestic situation, and adding to it the complex international panorama, there is zero interest on Wall Street for buying Argentine offerings. But, kindly, there are traders that went ahead and bought credit default swaps for Argentina. It's that Natixis will be seen as obliged to resort to this instrument to guarantee the compliance in payment on the local debt.

Sources in the financial trading floors pointed out to this newspaper yesterday that "there was a higher demand for Argentine CDS, not only over what is happening with the conflict with the farm sector, but also over the financial operation with Natixis." What is worrisome is that insurance against the country defaulting is already quite high. Whoever wants to collect on this insurance for a million dollars in bonds in a year has to pay 5.8% (580 points) or US$58,000. It also must be pointed out that for over 12 months, the price of this insurance dissipates: it's at 654 points for three years, and 755 points for five years. This suggests that the financial market, from the basis of these prices and the "recovery value", has assigned a probability of over 50% that there will be a new default on local debt. A bad panorama for the Bicentennial judging by these expectations.

Natixis can't escape the international financial crisis. Yesterday it closed at 6.67, with a drop of 3.6%. It has plunged 65% in a year.

Initially, it was Societe Generale that would finance the train the officials call it the TAVE, or high-velocity train (in Spanish) and the word "bullet" is banned. But Societe gave up at the last moment. They said it was a casual decision, but it happened after the 4.9 billion loss from the reported fraud of trader Jerome Kerviel. Thus, Natixis arrived urgently on the scene. Then, last March, there was the need to announce a profound adjustment in costs as there was a drop of 55% in revenues in the first quarter for its investment bank and business divisions. It appeared that dark clouds were forming over the financier of the bullet train.

On the other hand, investors are not convinced by the fact that Argentina has sufficient funds to deal with all the debt coming due this year. They are looking beyond, with special emphasis on what could happen in 2009 and 2010. Issues like the Paris Club and the reopening of the debt swap with the bondholders that rejected the 2005 restructuring offer have been definitively filed. In that context, the possibility of obtaining credits for US$7 billion in the markets as is needed for next year is disappearing, more with a general caution in the main financial centers abroad.