Tuesday, April 18, 2006

Market Insight: Don't Cry for Argentina
By Benedict Mander
April 17, 2006

Last month, Argentina made its first bond issue directly to international investors since 2001 for $500 million. The country anticipates another $500 million. Previously, Argentina relied on Venezuela and local investors for all of its financing. This year, Argentina has borrowed $1.5 billion at below market interest rates from Venezuela and now feels confident enough to issue at market prices.

Some market analysts believe that Argentina will suffer a "whiplash" when the market changes. “Hold-out” investors who did not enter the restructuring last year still own $20 billion of Argentina’s unpaid debt. These investors prevent Argentina from issuing debt in foreign countries without risking the seizure of the funds. Without a settlement for hold-out investors, Argentina must pay an extra 30-50 basis points on locally issued debt.

Argentina is optimistic that Gross Domestic Product warrants will re-establish its credibility in international capital markets. Argentina is half way to its $4 billion funding requirement for this year. The remainder will come from a World Bank loan and domestic pension funds.

I don’t think Argentina has ever paid a long-term or medium-term bond in accordance with its terms. It is at a decision point: does it want to be a part of the world economy or not? At the moment, Argentina is not a serious country. – Manager of New York hedge fund that owns Argentine sovereign debt

No comments: