Argentina delivers record-breaking $497mn windfall to bond investors

Bloomberg

Investors who bought bonds in Argentina’s record-breaking sale have made $497 million in profit in just one day.
The bonds that were sold for $16.4 billion now have a market value of $16.88 billion as of 4:48 p.m. in New York, according to prices compiled by Bloomberg. The notes, the first overseas debt sold by the country in 15 years, got bids from potential buyers for more than four times the amount offered, according to the government.
While the jump in prices speaks to investors’ confidence that President Mauricio Macri will succeed in his plan to bolster the economy and lure capital, it also signals that Argentina may have been able to issue at lower interest rates. The notes with maturities of three to 30 years were issued at yields ranging from 6.25 percent to 8 percent, already below average for similarly-rated countries.
“There’s high demand for Argentine paper, so those that got allocation are well positioned to gain,” said Jorge Piedrahita, the chief executive officer at brokerage Torino Capital in New York. He sees more value in the shorter-term bonds. “We’re seeing that some are already taking profits.”
In his first months in office, Macri ended currency controls and allowed the peso to trade freely, raised prices for regulated utilities and, most importantly, made a deal with the holdout creditors left over from the country’s $95 billion default in 2001.
Isolation from international markets caused by the legal disputes had cost the economy $120 billion, Finance Minister Alfonso Prat-Gay said last week. Some of the proceeds from Tuesday’s sale, the largest ever for an emerging-market nation, will be used to pay back creditors.
The $2.75 billion of three-year bonds and $4.5 billion of five-year notes both climbed to 102.7 cents on the dollar, while the $6.5 billion of 10-year securities bonds rallied to 102.6 cents. The country’s $2.75 billion of 30-year bonds, which were sold at 95.76 cents on the dollar, rose to 100.6 cents.
Yields on the bonds fell between 0.34 and 0.91 percentage point, meaning the country could have saved $84 million in annual interest payments had it sold the debt at Wednesday’s prices.
The Finance Ministry didn’t provide an immediate comment on whether the country could have gotten lower yields on the sale based on the high demand. Prat-Gay told reporters Tuesday that with orders from more than 600 investors totaling $68.6 billion, he could have easily issued double the amount of bonds.
“It’s easy to say, ex post and with this price dynamic, that Argentina could have gotten cheaper financing,” said Hernan Yellati, head of research and strategy at BancTrust & Co. “The truth is that this would have been hard to anticipate because Argentina had to prove it could raise the funds to pay the holdouts and leave the default before it could trade at these levels.”