Moses parted the Red Sea, says the Bible. Javier Milei opened the markets to Argentine companies, the facts say. Argentina’s biggest companies rush to market to issue dollar debttaking advantage of falling debt yields and the collapse of the risk premium, a sign that suggests President Javier Milei’s shock therapy is beginning to restore investor confidence in the economy. Not only private companies, but the province of Buenos Aires has also managed to return to the markets with great success.
The drastic budgetary adjustments which have led the country to record several tax surpluses and the promise to maintain this budgetary anchor at all costs are gradually restoring confidence in Argentine businesses. The risk premium (country risk in Argentina) fell to 1,044 points, a level not seen since August 2019. This good performance of the country’s sovereign debt is transmitted to companieswho are taking advantage of the moment to refinance the debt and issue new bonds, capital which they will probably use, invest and generate greater economic activity and future production capacity. The real economy continues to suffer significantly from these policies that reduce growth today, but which, if successful, will result in greater economic prosperity tomorrow.
Banco de Galicia and YPF
A good example of these companies obtaining financing in dollars is the Banco de Galicia y Buenos Aires, the largest private credit institution in the country, which this month sold $325 million of bonds due 2028 to the foreign with a yield of 7.875%, while YPF Luz, the electricity subsidiary of the national oil company YPF, issued $420 million in eight-year bonds with a yield of 8.2%. State-run Banco de la Nación has announced plans to return to international capital markets for the first time in around 30 years.
These sales are the latest in a series of operations that have raised just over $4 billion in debt, the highest amount since 2017, according to data compiled by Bloomberg. Although the prospect of monetary easing in the United States has boosted demand for high-yield bonds,Milei’s determination to balance the budget, reverse the country’s dollar flight and end inflation They played an important role in the recovery, according to investors and reported by the Bloomberg agency.
“Investors are seeking returns from issuers that could benefit from positive catalysts such as Argentina’s ambitious shift towards more orthodox economic policies,” said Alexander Robey, emerging markets debt portfolio manager at Allianz Global Investors GmbH in London.
Banco de Galicia, which raised money to finance the purchase of HSBC’s Argentinian subsidiary, received offers that quadrupled the amount offered, according to directly informed sources, who asked not to be identified because the transaction was private. Facing increased demand, Vista Energy said it would issue up to $150 million of securities, while the Albanesi Group plans to refinance its dollar debt that matures within the next three years.
Optimism invades Argentinian finances
Growing optimism about the state of Argentina’s economy has widened the gap between its sovereign debt and its American peers at 1,044 basis points, according to a JP Morgan indexthe lowest since August 2020. Meanwhile, the yield on around 80% of Argentina’s international corporate bonds, with at least 100 million outstanding, fell below 10%. As of August 2023, only 27% of bonds had a single-digit yield, according to Francisco Schumacher, corporate strategist at BancTrust.
Falling yields allowed the city of Buenos Aires, one of the country’s most high-profile issuers, to sell up to $600 million in debt between November and March. “We are starting the engines,” says Abel Fernández Semhan, the city’s finance undersecretary. “We carry out the formal process to choose a bookrunner and monitor spread compression for Argentine regional bonds.”
“The fury of investments”
Argentine President Javier Milei on Tuesday highlighted the drop in Argentina’s “country risk” index to levels not seen since 2019 and predicted an “investment fury” in the South American country. “This is the lowest level of ‘country risk’ in the last five years,” underlined the Head of State during the monetary conferences organized by the Central Bank of Argentina.
The indicator prepared by JP Morgan and which measures the risk of investing in Argentine assets fell this Tuesday to 1,044 basis points, its lowest level since August 2019. Milei attributed this drop to its “zero deficit” policy. ”, which implies “not contracting new debts”. ” and make the country more “solvent”, he assured.
“The continued decline in “country risk” will lead to a decline in discount rates. Look at how much Argentine financial assets have grown. An investment fury is coming,” he assured. He affirmed that the investment appetite would not only be in Argentine financial assets, but that there would also be multi-million dollar investments in real economy projects thanks to the new large investment incentive regime (RIGI).
“For RIGI, More than $50 billion in investments announced“, he said. Milei affirmed that “there is a recovery in demand” because for five months now “there has been a recovery in real wages”. After contracting by 1.6% in 2023, the Argentine economy accumulates in the first seven months of this year, a decline of 3.1%, seriously affected by Milei’s adjustment policy.
For 2025, the budgetary project prepared by the government foresees a vigorous recovery of the economy of 5%, although private consultants surveyed each month by the Central Bank predict a more moderate growth of 3.5%.
